The sharp decline in lamb and sheep prices last week came as a bit of a surprise after a long period of peak prices. When prices move in such a fashion it is due to supply overwhelming demand, here we look at whether this is a short-term change, or a sign of things to come.
Last week saw the largest east coast sheep and lamb yarding since mid-June. Figure 1 shows that while yardings are up, the rise hasn’t been extraordinary — in fact, this time last year saw a stronger jump than what we’ve seen over the past fortnight.
It is Victorian and South Australian producers who tend to drive supply higher at this time of year and see east coast yardings swell, as shown in Figure 1. Figure 2 shows lamb yardings have been below average in Victoria for spring to date but have followed the normal trend higher.
Anomalies in spring and early summer supply patterns at Victorian saleyards are relatively rare. Even in the rebuild years of 2020 and 2021, Victorian lambs hit the saleyards in earnest late in the year. We did find a weaker supply year, however — Figure 2 shows that in 2022, lamb yardings in Victoria were 7% lower than the five-year average.
A quick look at rainfall for spring 2022 tells us that the weaker-than-normal supply in that period was likely more due to the very wet spring (see more here) than restocking intentions.
Looking at the demand side, short-term price moves like the one we saw last week are usually due to supply outstripping slaughter capacity. We know that export demand for lamb is strong, and weak slaughter rates since May are due to a lack of supply.
Figure 3 shows east coast lamb slaughter was still running well below last year, the five-year average, and 2022. There needs to be an incentive in terms of profit margin for processors to put on more shifts, hence the price falls we’ve seen recently.
Luckily for us, the US government shutdown hasn’t impacted reporting of imported lamb prices. Export prices for Australian lamb remain very strong and are above last year’s levels.
What does it mean?
Lamb supply and demand are adjusting to what is expected to be a tighter supply season. Saleyard values remain well above last year and, as such, will encourage early sales of lambs — especially if the season is cutting out. Prices will find a level when producers decide they are better off holding for more weight, and processors can make a margin on lambs. Our guess is in the 1000–1050 ¢ range, but short-term shocks can quickly make a mockery of forecasts.
Key Points
- Lamb markets had a sharp decline last week as yardings increased in southern states.
- Further increases in saleyard lamb supplies are likely over the coming month.
- Prices will steady when processors are encouraged to increase capacity in response to improved margins.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: ABS, MLA, Mecardo
