Lamb supplies to remain price-depressant

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Lamb and sheep prices have been on the decline this autumn thus far. Lamb supplies have been stronger than last year and processing constraints persist, which leads to lower prices. Here we try to assess when supplies might ease up, if at all, as we approach the winter.

Meat and Livestock Australia (MLA) and Australian Wool Innovation (AWI) released their February producer intentions survey (PULSE) results a fortnight ago.  The headline from the PULSE report was that a lot of lambs had been carried over from the spring,  to be sold in summer or autumn.

MLA’s weekly slaughter data tells us that during the spring lamb slaughter on the east coast was 11.6% stronger than last year in the spring.  If fewer lambs were sold than expected, there is either a huge increase in lamb supply coming this year or the lambs which weren’t sold were store lambs, not slaughter lambs. 

It is likely a combination of these factors, but the strong slaughter suggests growers who usually sell lambs at store held more back as they didn’t like the price.  Anecdotal evidence backs this up to an extent.

If we go back to MLA’s February projections, we find that lamb slaughter for 2023 is only expected to be 3% higher than in 2022.  For the year to date, we have seen 7% more lambs slaughtered, despite the well-documented restrictions on capacity. 

If we do some back-of-coaster calculations we can work out where lamb slaughter needs to track for the remainder of the year to hit MLA’s projection target.  To hit a 3% year-on-year lamb slaughter increase on the east coast, we need to see around 340,000 head processed per week for the remaining 40 weeks. 

The red line in figure 1 shows where the projected slaughter rates sit compared to last year, and the five-year average.  It is just 1% higher over the 40 weeks, but will range above and below the average mark like it did last year.

What does it mean?

There are still plenty of lambs to be processed this year, and it is increasingly looking like we might see supply track at similar levels to last year.  That is, there won’t be the usual winter supply decline shown by the five-year average. 

 

Unfortunately, this offers little scope for price improvement. A similar supply curve will result in similar price movement (see figure 2), without the winter rally which traditionally rewards those who carry lambs through the summer and autumn.

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Key Points

  • Lamb slaughter has been stronger than last year, but plenty of lambs are still to come.
  • We are unlikely to see the traditional winter lamb supply dearth.
  • Lamb prices are likely to continue to trade sideways through autumn and winter.

Click on figure to expand

Click on figure to expand

Data sources: MLA, AWI,  Mecardo

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