By Augusto Semmelroth | Source: DAFF, MLA
The recent decline in lamb slaughter rates has finally started to impact lamb exports more substantially. As the increase in new season lamb supply fails to gather momentum, the constricted availability of slaughter lambs has led to a 13% plunge in exports month-on-month to 17,191 tonnes swt in July. Trade conditions with Europe and Asia remain sluggish but other markets are picking up the slack.
The DAFF export data released earlier this weekwas able to confirm our expectations that new season lamb supply is taking longer to appear this year, particularly compared to 2014. The sharp fall in export volumes also suggest domestic processors have stepped in strongly to secure sufficient numbers, pushing many exporters to the sidelines.
While a contraction in exports was largely expected, shipments fell at a much stronger rate than the actual drop in supplies, which supports the view exporters struggled to secure sufficient supplies. After tracking above 19,000 tonnes swt for most of 2015, the drop to 17,191 tonnes swt in July puts volumes 17% below year-ago levels and at the lowest level in 22 months – excluding January.
To put the intensity of the fall in exports into perspective, figure 2 shows the year-on-year change in volumes. After three consecutive years of strong export growth, shipments are now increasing at a much slower rate than before based on the 12-month rolling average (orange line). While the 17% fall in shipments year-on-year in July may look a bit extreme, it nevertheless flags the expected end of this growth phase.
Although lamb shipments to all key overseas markets fell considerably in July, Europe and Asia (including China) continue to disappoint. Total lamb shipments to Asia fell 34% below year-ago levels in July to 4,645 tonnes swt. As a result, year-to-date export volumes to the region are only at 38,333 tonnes swt, a 20% contraction from the levels seen in 2014.
Trade conditions with Europe have also been weak, to say the least, with year-to-date exports to the regions totalling 5,706 tonnes swt, a 29% reduction over the corresponding period in 2014. Offsetting the poor performance of Europe and Asia, export demand from the US and the Middle East has been fairly strong since the start of the year.
As of July, an excess of 40,000 tonnes swt were shipped to the Middle East making the region the largest overseas market for lamb meat.
The sharp fall in exports seen in July reaffirms our view that lamb supplies are running thinner than expected, and that domestic processors are also competing strongly for numbers. By no means do we see this trend as a major shift in export demand at this stage. On the flipside, China and Europe are yet to show any positive signs of improved appetite for lamb meat.
Lamb markets continue to fare rather well this time of the year mainly on the back of tightening supplies. For how long this will be sustained is yet to be seen. Yet, by now it has become clearer that we are unlikely to see prices plunging as they did in 2014 and a smoother spring price downtrend should be expected.
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