By Augusto Semmelroth | Source: DAFF, MLA
Despite the declining lamb supply and ongoing lukewarm Chinese demand, lamb exports reached 21,305 tonnes swt in November, a record for the month. This clearly shows the net global demand for lamb meat remains strong while a gradual shift in trade dynamics is taking place. That is, the demand void left by China has gradually been filled by traditional and less known markets.
After a spike in lamb turnoff in the second half of October, lamb supply finally started to dwindle in November following its seasonal supply trend in spring. Yet, the declining slaughter rates seemed to have little to no impact on lamb exports in November. Exports remained virtually unchanged from October levels, and 11.6% higher year-on-year.
This is possibly due to the fact the meat derived from lambs slaughtered in late October may have only been shipped overseas in November. In addition, export stats tend to provide a myopic view of lamb supply given they reflect both the available supplies but also the export demand. In other words, exports are ultimately a measure of supply and demand, not supply in isolation.
That said, the export stats released by DAFF are still a great source of information for us to assess the health of domestic and export demand and, indirectly, supply. In addition, the timely release of the data, generally one day after the conclusion of a month, allows us to quickly observe changes in market dynamics.
Overall, lamb exports to Asia continued to disappoint and remained 11% below year-ago levels in November on the back of restricted volumes into China (figure 1). Yet, the lacklustre performance of China has allowed other markets to step into the lamb meat trade more effectively in recent months. This is particularly the case for the US and less traditional markets such as Papua New Guinea (PNG).
To put this changing dynamic into a better perspective, figure 2 shows the season-to-date (July-to November) lamb exports to key regions. While lamb shipments remain 26.3% below 2014/15 levels at 25,669 tonnes swt, exports to the US are 2% higher year-on-year at 20,717 tonnes, the largest volumes registered for the July-November period on record.
Another bright light among export markets is PNG. Between July and November 7,742 tonnes of lamb meat were shipped to the country, a 55% increase over the same period in 2014 (figure 3). This makes PNG the fourth largest export market after the US, China and the UAE.
After an unexpected slowdown in Chinese demand earlier this year, exporters have managed to find new homes for lamb meat this year. As a result, we have seen the pool of export markets diversify slightly in recent months, which has reduced our dependence on Asian demand. Overall, we believe that diversifying the pool of export customers is critical to sustain the health of the lamb industry and maturity of the global lamb meat trade.
Based on the slaughter and exports stats so far, we believe lamb output this season should remain slightly below year-earlier levels. That, coupled with the prospects of a 6.3% reduction in lamb exports from New Zealand in 2015/16 and a supportive A$, bodes well for lamb prices for the rest of the season.
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