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Thursday, August 10, 2017

Tighter lamb supply still expected

By Angus Brown  |  Source: MLA, ABS

Key points

  • MLA’s sheep industry projections have been released, with little change to lamb slaughter, and some increases for sheep.
  • Lamb prices should find support over the long term, with slaughter expected to take four years to return to 2016 levels.
  • If MLA’s 2017 slaughter forecast is correct, lamb prices should be stronger than 2016 this spring.

2017-08-10 Sheep Fig 1

2017-08-10 Sheep Fig 2

2017-08-10 Sheep Fig 3

Meat and Livestock Australia (MLA) this week released an update to their sheep and lamb projections, and while little has changed, it does tell somewhat of a story. MLA are sticking with tighter lamb supply for the remainder of 2017, and the coming two years, but mutton numbers are expected to be a bit stronger. There should be continued support for sheep and lamb prices.

MLA’s sheep and lamb projections are based largely on survey data, and they saw no reason to alter forecasts based on June survey results.  It will be interesting to see how the October survey pans out, as a couple of dry months may change restocking intentions.

The forecast for 2017 lamb slaughter remains the same, at 21.5 million head, and there was no change to the 2018-2021 forecasts either.  MLA don’t expect a new record to be set for lamb slaughter until 2021, and as such, if demand remains steady, we can expect average annual prices to be stronger than 2016 for the next four years.

There is downside however, with 2016 prices unlikely to be repeated without strengthening demand.  Increasing demand is something we have enjoyed for much of ten years, whether this continues is a topic for another article.

MLA did alter their sheep slaughter forecasts slightly.  Survey data suggested some of the ewes and wethers which have been retained during a couple of tight slaughter years might start to come back to market in the second half of this year.  As such MLA added 3% to 2017 sheep slaughter forecasts, and 13% to 2018. 

With stronger near term sheep slaughter, comes weaker long term.  MLA took 6% off 2020 and 2021 slaughter estimates, as the flock moves into more of a static phase, and out of the growth phase it is in at the moment.

MLA’s 21.5 million head lamb slaughter forecast for 2017 leaves 10.5 million head to be slaughtered in the second half of this year.  This would be a 7% decline on 2016 slaughter levels, and figure 3 shows how the five year average seasonal supply pattern will see slaughter play out.

What does this mean?

If lamb supply follows the trend outlined in figure 3, and we end up killing 21.5 million head in 2017, we can expect spring lamb prices to be stronger than 2016.  Normal rainfall in August and spring is likely to see lamb prices remain north of 500¢ for the rest of the year.

MLA did outline a couple of issues with demand.  Due to plant closures there is less slaughter space this year, while a dry spring, on the back of a dry winter, will see light lamb supply push numbers up, and prices down.

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