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Thursday, December 22, 2016

Record lamb supply now but what next?

By Angus Brown  |  Source: NLRS

Key points

  • Lamb supply, and as such price, has waxed and waned with seasonal conditions in 2016
  • MLA and AWI’s survey data suggests lambs supply could be weaker in the New Year.
  • If the survey marking rates are correct lamb prices could be much stronger in first half of 2017.

2016-12-22 SHEEP FIG 1

2016-12-22 SHEEP FIG 2

2016-12-22 SHEEP FIG 3

It’s been a record year in lambs markets, with supply records broken at local and national levels. Meat and Livestock Australia (MLA) are suggesting things will be a little bit tighter next year, but the first half of 2017 might have a few surprises in store if survey data is to be believed.

The Hamilton saleyards last week broke their own national lamb yarding record with 62,187 head.  On a national scales it’s going to be close, but MLA are tipping that total slaughter for the year will fall just 1% short of the 2015 record of 22.72 million head. 

The story of the season is pretty well told by the weekly lamb slaughter chart in figure 1.  The dry spring, summer and early autumn saw heavy lamb supply outstripping 2015 for most of the first half of the year.  At Mecardo we kept saying supply had to fall, and it did, eventually.  June, July and August saw very tight supplies push prices to record levels.

An exceptional spring saw a delay of the spring lamb flush until November, and interestingly, lamb slaughter has actually set a new record in the last 6 weeks of the year, surpassing 2014 by 1%.

Prices reacted to supply accordingly, spending the first half of 2016 lower than the previous year, and the June to October period higher.  Recently trade lamb prices have been similar to last year, with the abundant feed seeing light lambs at a premium, and heavy lambs at a discount.

So what’s in store for the first half of 2017?  According to MLA’s slaughter numbers, on the East Coast 435,289 head fewer lambs have been slaughtered since the start of July.  Are these lambs going to appear in the New Year, or are they simply not there, or going to be retained.

The latest MLA and AWI Wool and Sheepmeat Survey Report tells us the lambs may simply not be there.  While 2016 saw 1% more ewes joined to lamb in the June to October period, a very large drop in marking rates saw the number of lambs marked falling 19%.  Merino lambs marked are down 14% on last year (4 million head), ‘other’ lambs 4% (400,000 head). Figure 2 shows Merino and ‘Other’ Sheep marking rates fell to 75% and 89% respectively.  We have survey data back to 2011, and marking rates have never been lower in October.

In the survey 35% of respondents planned to increase the size of their flock, while only 8% are going to decrease, which is consistent with ideas of a flock rebuild.  Of those planning to increase the flock 39% are going to retain more lambs, which will further tighten supply, already tight through lower marking rates.

What does this mean?

In their projections MLA are forecasting lamb slaughter for 2017 to be down 500,000 head on 2016.  This would suggest they expect a big boost in supply in the second half of the year.  With 4 million fewer spring merino lambs, 400,000 fewer other lambs and an intention to rebuild we would expect lambs supply to be more than half a million head tighter in the first half of 2017.

Figure 3 shows how slaughter will trend with 500,000 fewer lambs, in the first half of 2017.  There is a real chance that the lower lamb production could see lambs supply track closer to the five-year average, and this is a recipe for a return to lamb prices back in the 550-600¢ range.

This is the final lamb/sheep update for 2016 and will return in January 2017. The Mecardo team wish you all a great festive season.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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