Standard livestock market analysis centres around supply, with shifts in demand usually gradual, and rarely to the downside. The odd ‘Black Swan’ event can see demand or supply undergo more sudden movements and cause rapid shifts. It feels like we are seeing potential ‘Black Swans’ every week at the moment.
Last week’s ‘Liberation Day’ tariffs have had a marked impacted on global equity and foreign exchange markets.
So far, the ASX has tanked, and the Aussie dollar is on the cusp of moving below 60 US cents. While all this was happening last week, the sheep and lamb market found significant strength.
Rain through northern NSW sheep country over the last month has tightened sheep supply, and it appears some processors have been caught short on sheep. The jump in mutton prices last week was the sort of thing last seen 2019, when the timing and size of the price rise was eerily similar to recent price gains (figure 1).
Back in 2019 increased prices were closely followed by a massive jump in lamb prices, which helped sustain, and further strengthen mutton values. Figure 2 shows mutton is back within 300¢ of the Eastern States Trade Lamb Indicator (ESTLI), which is still below the long-term average.
This suggests the mutton price increase might not precipitate an upside in lamb this time. It also suggests the increase in mutton values is likely sustainable, especially if supply continues to tighten.
The ‘Black Swan’ that is the US tariff agenda could have some say in the demand for mutton. The 10% tariffs on Australian goods will be the least of our worries, with just 4% of our mutton exports destined for the US.
Asia has accounted for 58% of our mutton exports for the year to date, and they have been hard hit in the tariff regime. Recession in major markets is never good for prices. It would no doubt lead to a weakening demand for mutton. How this impacts price depends on how supply tracks from here.
What does it mean?
In the absence of tariffs, we would be very positive on the future of mutton pricing. The impacts of tariffs on demand for our mutton in the export market is entirely unknown, but the weaker Aussie dollar will cushion some of the impacts, and tighter supply will provide support.
Key Points
- Mutton values had a huge increase in price last week on the back of tighter supply.
- The rise was similar to a jump in 2019, which was sustained through the winter.
- Tariff impacts on major markets adds uncertainty to mutton price outlook.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: DAFF, MLA, Nutrien, Mecardo
