By Matt Dalgleish | Source: MLA, ABS
Earlier this week the Meat and Livestock Australia (MLA) released its sheep industry projections for 2016 with some adjustment to the figures released in July 2015. This article takes a look at some of the changes and their implication for the coming year.
Looking at supply, overall flock numbers are anticipated to stabilise in 2015/2016 at 70 million head and then stage a gradual rebuild towards the end of the decade to reach 73 million head by 2019 (figure 1). This cautiously optimistic intention to rebuild flock numbers points to an increased focus on productivity gains through increased lamb marking rates, genetic advances and effective ewe management programs to support the rebuild.
Lamb slaughter is expected to remain virtually unchanged year-on-year in 2015 at 22.25 million head. However, slaughter numbers are projected to fall 3.4% in 2016 to 21.5 million head, although this is still in line with the MLA figures released in July 2015.
Lamb slaughter numbers are forecast to increase beyond 2017 (figure 2). The continued changing composition of the flock, through a higher proportion of crossbred and meat sheep as experienced in NZ in the last few decades, will further support productivity gains. This is further highlighted by the expectation of a steady increase in lamb carcase weights towards the end of the decade to near 23kg cwt.
Sheep slaughter is projected to be 15.7% lower year-on-year in 2015 at 8.5 million, and drop another 11.8% in 2016 to 7.5 million head (figure 3). By the end of 2019 MLA expects the flock to be 2 million head larger than its original July 2015 estimates. This indirectly suggests a positive change in producer sentiment towards increasing numbers since the figures were released in July.
On the demand side of the equation, live sheep exports are expected to remain 13% lower year-on-year in 2015 at 2 million head before stabilising at 2.1 million head between 2016 and 2019. While the 2015 figure is in line with the July 2015 forecast, the estimates beyond 2016 have seen a significant downward revision as the July projections estimated live exports at 2.7 million head in 2019.
Despite this revision to live exports, overall lamb exports are expected to reach 280,000 tonnes swt in 2019, which will signify a 19% increase from 2015 levels. This is well above the projected 12% increase in production during the same period suggesting robust export demand will a key driver in price going forward.
The consensus view for the A$ is for a move back under 70 US cents into 2016 towards the mid-60s region. Further, projected levels of increased sheep and lamb production are outweighed by the forecast rises in export demand over the same period. During this timeframe, supply will remain reasonably tight within both the Australian and NZ market. This combination of factors is likely to underpin the domestic market and bodes well for prices in the 2016 season. A mid-year peak for the Eastern States Trade Lamb Indicator (ESTLI) around 630-650¢ is not out of the question.
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