By Andrew Woods | Source: ABS, MLA, AWPFC, ICS
Lamb prices are solid, sheep prices are high and wool prices are out of this world, so what is happening to the flock size? This article takes a look at the sheep and lamb slaughter rates, which are a guide to which way farmers are leaning in terms of sheep numbers.
Sheep offtake expresses the rolling 12 month total of adult sheep sold to abattoirs as a proportion of the flock size. Live exports out of eastern Australia are also added into this total as they are quite variable and are lost to farm production. Figure 1 shows the sheep offtake for Australia from the mid-1980s onwards, along with the flock size. The shaded areas in Figure 1 denote periods when the sheep offtake is less than 12%, which is roughly the neutral level. Above 12% the flock offtake is associated with downward pressure on sheep numbers and below 12% it reflects pressure to build numbers.
Since late 2016, the sheep offtake has been below 12%, with little response in the flock size, which appears to have been stable. The sheep offtake has been rising since mid-2017 and is back to the 12% level indicating the flock size is not going to be increase in the short term.
The lamb offtake (the rolling 12 month total of lambs expressed as a proportion of the flock size) has stabilised in recent years at around 32-33%, after trending higher from the early 1990s onwards. In 2010 and 2011 lamb offtake fell in response to good seasonal conditions and a desire to rebuild sheep numbers after the torrid seasonal conditions from 2002 to 2008. In the past couple of years the lamb offtake has stabilised, but not fallen.
The flock structure has changed during the past couple of decades in terms of breeds, with less merino and more meat sheep and an increased focus on lamb production. As such, the significant levels for these offtake levels may change.
The rising lamb offtake since the early 1990s is strongly correlated with the increasing lamb value in relation to wool. This makes sense, as farmers have responded to the higher relative lamb prices by allocating more farm resources to lamb production. Figure 3 shows a simple regression model of the lamb to wool price ratio (smoothed and lagged by 3 years) along with a rainfall series to the lamb offtake. While the underlying logic for the model is good and the correlation is a very strong one, some caution needs to be taken as the model only explains one strong trend.
In Figure 3 the interesting message from the model is the effect of high wool prices in recent years and stable lamb prices. The increase in wool price relative to lamb means the model is forecasting the lamb offtake to ease slightly in the next 2-3 years; with seasonal conditions the major underlying variable.
The sheep offtake has risen back to neutral levels, which means prospects for an increase in the flock size in the coming season are looking slim. Unlike 2010-2011 when the lamb offtake dropped noticeably, the lamb offtake has remained at stable, high levels in recent years. This helps to explain the stable flock size despite the sheep offtake being at expansionary levels.
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