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Thursday, June 11, 2015

Where have all the lambs come from?

By Angus Brown  |  Source: ABS, MLA's NLRS

Key points

  • It looks like 2014-15 lamb slaughter will not only surpass MLA’s projections, but set a new record over 22 million head.
  • The increase in lamb slaughter has been spread between NSW, Victoria and SA, and is likely due to increased lambing percentages and lower retention.
  • Despite stronger slaughter, lamb prices have averaged higher in 2014-15 which is good news for demand.

2015-06-11 Lamb Slaughter FIG 1

2015-06-11 Lamb Slaughter FIG 2

With lamb slaughter continuing to run at historically strong levels, and possibly outstripping the 2013-14 record slaughter, supply has been much stronger than Meat & Livestock Australia (MLA) forecasts from January. This begs the question: where did all the extra lambs come from, and what can we learn from this in future supply forecasts?

Even with lamb slaughter for May and June expected to come in 4% and 6% below last year’s levels, respectively, Australia is going to slaughter over 22 million head of lambs for the 2014-15 financial year.  We expect 2014-15 lamb slaughter to be around 22.5 million head (figure 1), which will be 3.5% higher than 2013-14 and 14% above the five year average.

Back in January, MLA’s sheep industry projections forecast lamb slaughter for 2015 to be 11% lower than 2014.  This forecast roughly translated to a 2014-15 slaughter forecast of around 21 million head.  As such, we have seen around 1.5 million head more lambs slaughtered than expected.

Figure 2 shows the increase in lamb slaughter was largely concentrated in NSW and Victoria. We are expecting around a 340,000 head increase on 2013-14 in both states, and 212,000 head increase in SA. 

MLA was expecting fewer ewes to be joined last year. At similar lambing percentages, and combined with larger retention of breeding stock, this should have resulted in lower lamb slaughter.

Better lambing percentages are one reason often cited as a reason for stronger lambing supply.  If we increase lambing percentages from 100% to 110% across a slaughter lamb breeding flock of 20 million, we get an extra 2 million head of lambs.  A relatively good joining and benign weather in the autumn would have contributed a large portion of the extra numbers.

Additionally, the dry spring would have delayed restocking intentions, with more than expected Merino wether lambs and some composite ewe lambs being slaughtered.  Weak wool prices earlier in the year would have helped with the stronger than expected Merino slaughter.

We should also remember there are still around 70 million head of sheep in Australia. A vast majority of these are ewes, all of which are capable of producing slaughter lambs.  As such, it doesn’t take much of a swing towards to prime lamb production, as we have been hearing anecdotally for some time, to see a large increase in lamb slaughter.

What does this mean?

Despite the radically stronger lamb slaughter levels than expected, prices have remained relatively strong. In fact, they have actually averaged higher than 2013-14 (figure 1), despite what looks like being higher supply.  This is good news for prices if lamb supply does ever contract.

The higher lamb slaughter this year also suggests that there is more of a swing towards prime lamb production than previously thought. It also implies that good lambing weather in key producing areas, and drier than normal springs, can have significant impacts on total supply, not just when lambs hit the market.

In terms of prices, the major lesson from this year is that official supply projections can be out by a long way. For this reason, a wider spread of possible supply scenarios need to be built into price forecasts.

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