By Augusto Semmelroth | Source: DAFF, MLA
The ongoing contraction in slaughter since the end of April has finally started to see lamb exports steading in May, with shipments sitting just below 20,000 tonnes swt, or 3% below year-ago levels. Although the volumes remain at similar levels to 2014, the dynamics of export markets have changed substantially. Asian markets have stepped out of the trade to give room for a US and Middle East comeback.
The sheer volume of lamb meat exported this year has defied most expectations. This is particularly the case given the expected reduction in slaughter and the reported “less favourable” trade environment as a result of softer Asian demand and strong competition from New Zealand. Despite that, year-to-date lamb exports are totalling 98,302 tonnes swt, which puts this year 5% ahead of the previous record set in 2014.
Yet, after a surge in lamb slaughter in March and April, and consequently a spike in exports, volumes are finally starting to wane. While shipments in March and April were 22% and 12% above year-ago levels, respectively, volumes in May fell 3% year-on-year. This trend clearly demonstrates that the supply glut seen over the last few months is finally behind. Moreover, it flags that the peak in autumn lamb turnoff occurred earlier this year.
At the export market level, Asian demand, more specifically that of China, has softened in recent months on the back of more comfortable domestic supplies and abundant access to New Zealand product. As a result, year-to-date lamb shipments to the region have only reached 28,222 tonnes swt, a 14% reduction over the corresponding period in 2014.
As China absorbs a smaller portion of the export pie, other markets have stepped in to fill the void. This has been particularly the case of the US and the Middle East, which have seen year-to-date shipments up 12% and 14% above 2014 levels, at 20,928 and 27,833 tonnes swt, respectively. This puts the Middle East almost on par with Asia as the largest export destination in 2015, with each region accounting for roughly 28.5% of total exports.
As with China, exports to the EU have dwindled considerably this year mainly as a result of the competition with New Zealand (EU major supplier). Year-to-date lamb shipments to the region are only totalling 4,875 tonnes swt, a 19% drop on the corresponding period in 2014. However, this has been largely offset by a surge in exports to other markets (primarily PNG and south East Asia).
From a supply standpoint, the further contraction in lamb turnoff in the short-term (June/July), coupled with a sharp fall in exports coming out of New Zealand during this period, should see a rebalance in the global lamb meat supply. By that, we mean a change from a state of oversupply in February-April towards more adequate levels, and perhaps a minor short-term deficit.
That said, some key export markets (most notoriously the US) have built “above average” frozen lamb stocks during the last few months. This will help them to better cope with a potential shortfall in volumes in winter, or at least avoid any major supply shocks.
With that in mind, it’s unlikely we will see major price rallies in lamb markets in June/July as key overseas markets will gradually adjust to the further decline in exports by depleting existing stocks. Yet, we still believe that export demand is firmer than many expect, and that the contraction in slaughter rates will still have a positive impact on prices. That, coupled with the ongoing depreciation of the A$, should give lamb markets more upside ahead.
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