With lamb markets close to historical highs, and supply tightening as we usually see in the winter, there is an expectation that mutton prices would also be strong. We know that while mutton is much stronger than this time last year, prices remain well below the five-year average. Export demand and restocker interest are seemingly the limiting factors.
Figure 1
gives us an indication of how weak mutton prices are relative to lamb. The National Mutton Indicator (NMI) discount
to the Eastern States Trade Lamb Indicator (ESTLI) shows how mutton supply and
demand are performing relative to lamb.
After
tracking at a 200-300¢ discount for the best part of a decade, the NMI discount
to the ESTLI has tracked lower and has averaged 380¢ for the last year. The 52-week moving average shows the NMI
discount is still trending down, sitting at 440¢ last week.
The fact
that lamb and mutton are processed on the same chain is what usually keeps
prices moving in similar directions. If
lamb supply is tight, prices rise and demand shifts to mutton, bumping sheep
prices as well. What we are witnessing with stronger mutton discounts, is
weaker export demand for mutton, relative to lamb.
Mutton
export numbers for July give some indication of weaker demand. Stronger slaughter led to stronger exports,
with mutton exports up 44% on 2023 in July, and up 125% on the five-year
average.
Mutton
exports to the Middle East were up nearly 500% in July, but it seems it is a lower-priced
market than China. Mutton exports to
China were down 29.6% on last year in July (Figure 2), although they were still
above the five-year average.
Mutton
supply and exports have been similarly strong for a couple of periods over the
last 10 years, but, the discount to lamb has remained in the 200-300¢ range.
Another
factor which can impact sheep and mutton prices is restocker demand. Restocker demand is hard to measure, but we
know that it is virtually non-existent in WA, and weak on the east coast
following a few years of flock rebuild. Weak
wool prices will be exacerbating weak restocker demand for merinos.
What does it mean?
Shifting export demand and weak restocker demand look to be to blame for a 400¢ plus mutton discount to lamb. With a relatively positive outlook for lamb, mutton prices shouldn’t be headed back into the doldrums of late 2023 (Figure 3), but it also looks like processor prices are limited to the 450-500¢ range. Much weaker supply might be the key to seeing better value for mutton, but that is hard to envision in the medium term given the current fundamentals.
Key Points
- Mutton discounts to lamb have continued to widen over the last 12 months.
- Total mutton exports are stronger, but they are down in China.
- Weak restocker demand is also limiting upside in mutton prices.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo
