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Friday, February 07, 2014

MLA projections point towards increasing sheep and lamb prices

By Angus Brown  |  Source: MLA

Key points

  • MLA’s 2014 Sheep and Lamb Projections have forecast significant contractions in lamb and sheep supply.
  • The demand outlook is good, with declining NZ supply and lower A$ assisting exports.
  • Sheep and lamb prices in 2014 and 2015 should be strong relative to 2013.

2014-02-07 MLA Projections Point Towards Increasing Sheep And Lamb Values FIG 1

2014-02-07 MLA Projections Point Towards Increasing Sheep And Lamb Values FIG 2

2014-02-07 MLA Projections Point Towards Increasing Sheep And Lamb Values FIG 3

MLA today released its 2014 Sheep and Lamb projections, with key forecasts being lower slaughter of both sheep and lambs and continued strong export demand - both of which should have a positive impact on prices.

MLA is forecasting national lamb slaughter to fall 4.3% in 2014 from the record 2013 levels. While this won’t take slaughter back to the very low numbers of 2010 and 2011, it is a significant contraction in numbers nonetheless.  Lamb slaughter is expected to decline further in 2015 as the impact of drought on sheep and lamb numbers continues to affect the stock available for slaughter.

A much larger decline in sheep slaughter has been forecast, with 2014 predicted to be 36% lower than the 5-year high levels of 2013, and back at 2012 numbers. This is a result of growers return to maintaining, or building, the flock after offloading more sheep than they would have liked in 2013 due to dry conditions.  From 2015 onwards, MLA expects sheep slaughter numbers to grow slowly as the flock increases.

The demand outlook looks bright, according to MLA, with good export demand, tight supply out of New Zealand and the lower Australian dollar combining to ensure demand for Australian lamb and sheepmeat remains strong, or strengthens. 

MLA has forecast lamb exports to fall in 2014, but only by 1.5%. This inherently means it expects domestic consumption to contract, falling 8.3% on 2013 levels, which should mean higher lamb prices for consumers.

Mutton exports are going to fall significantly, down 36%. They have to if supply contracts as predicted, with market share shifting towards China and away from the Middle East.

In summary, MLA expects sheep and lamb supply to contract, while demand remains steady or strengthens. Assuming seasonal conditions are normal, the question really is not which way prices are going, but how far they are going to rise.

What does this mean?

Economic theory tells us that if supply falls, and demand is steady or increases, prices will rise. Even at the levels quoted by MLA in its projections, the ESTLI should move back into the 450-600¢/kg cwt range over the coming 1-2 years, providing seasonal conditions return to somewhere near normal. 

For mutton markets, the story is the same, although demand may not improve as much as for lamb. However, the heavy fall in supply should ensure mutton markets move above 250¢ and possibly up to 350¢/kg cwt if and when it rains again in key sheep areas.

For growers wondering whether to feed ewes through the summer or sell them, MLA’s projections should offer some confidence that money shouldn’t be lost on sheep, again providing seasonal conditions improve.

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