By Angus Brown | Source: NLRS
Meat and Livestock Australia (MLA) released their tri annual sheep and lamb industry projections on Monday. While there were only minor changes to supply forecasts, extrapolating the data makes for some interesting analysis and price forecasts for the coming spring flush.
MLA’s short term lamb supply forecasts were increased, with the 2016 slaughter projection increased by 1 million head to 23 million. The main driver for the increased lamb slaughter was strong slaughter throughout the first half of 2016.
The official ABS numbers, which are available up to May, peg lamb slaughter at 9.86 million head. Our estimates of June and July slaughter, based on MLA’s weekly slaughter figures, bring the total to July to 13.28 million head. Figure 1 takes the slaughter to July and deducts it from a 23 million head total. The remaining 9.72 million head are spread over August to December based on 5 year supply seasonality.
MLA’s forecast pegs slaughter for the remainder of the year at levels 54,000 head below, which is a 1% decrease. Assuming steady demand, lamb supply similar to last year should result in prices similar to last year.
From August to December last year the Eastern States Trade Lamb Indicator (ESTLI) averaged 534¢/kg cwt (figure 2), and it’s not unreasonable to expect this again. However, the current good season, forecast for further good rainfall, and cheaper grain prices is likely to offer producers more options if they don’t like the price.
This should provide solid support for lamb price at whatever point producers decide is ‘too cheap’, last year this price was around 500¢, it could be 520 or even 540¢ this year. The flipside of producer holding back stock due to a good season is that it will see more lambs and lower prices at some stage down the track.
This may be averted if the season is so good, as in 2010 and 2011, that many female stock and merino wethers are retained for flock rebuilding and wool production.
Looking further out MLA are forecasting lamb slaughter to weaken slightly in 2017 to 22.5 million head. Again, this should result in similar to higher prices in 2017. Slaughter is expect to resume its increasing trend again through to 24 million head in 2020.
Projecting supply is inherently difficult, but MLA at least have the guidance of their sheep producer survey and their intentions. If the season turns out as expected there is a good chance lamb supply will be close to forecasts, or maybe even a bit lower over the remainder of 2016. This is supportive of prices, with demand factors seemingly more on the bullish than bearish side.
There is little doubt that if rainfall fails in the spring, supply will be stronger than last year, and prices likely lower, but even then the market is likely to find support at the 450¢/kg cwt level.
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