The Meat and Livestock Australia (MLA) Sheep Industry Projections released earlier this week are tipping 2020 to be the low point for lamb slaughter. With lamb supply expected to be on the rise, we look at how this might pan out over the coming year.
MLA are forecasting Australian lamb slaughter to lift 800,000 head in 2021. If we break this down it is a 4% increase, or 66,000 head per month. As shown in the article earlier in the week, with 1 million head stripped out of the 2021 forecast from September, total national lamb slaughter is still going to be the second lowest since 2012. (view article here)
With a slaughter estimate, we can plug it in to our demand curve model, and come up with an annual price estimate. Figure 1 shows annual slaughter versus the average Eastern States Trade Lamb Indicator (ESTLI). Despite Covid related demand issues 2020 managed to finish above 2019 in price, largely thanks to the big reduction in slaughter.
Assuming the MLA slaughter projection is right, and demand is more in line with 2018 rather than 2019, it gives an average annual ESTLI of 773¢/kg cwt. In 2022 lamb supply is forecast to be 1 million head higher again, at 21.8 million. If we move along the same demand curve it puts the average ESTLI in 2022 at 720¢/kg cwt.
January lamb slaughter has been slow, running around 13% below January 2020. If we deduct January slaughter from the 20.8 million head, and spread the remaining lambs according to average seasonality, supply looks like figure 2. The main differences are seen in April and May, and in the spring. This is largely due to 2020 having unusually low slaughter rates in these months.
It’s likely autumn slaughter will be lower than this projection and spring higher, with the better season not showing up in lamb supply until the second half of the year.
We can see where we expect supply seasonality to go, and with this comes price seasonality. Figure 3 shows that on average lamb prices move sideways from now to June, before rallying on tight supply. The red line shows the average price projected for 2021 in figure 1.
What does it mean?
Our supply seasonality projection would suggest prices might fall in the short term, but it’s more likely they will track sideways over the coming 3 months. The real price risk is in late winter and spring, when prices are likely to drop below the red average line on figure 3.
Key Points
- MLA’s Sheep projections forecast a lift in lamb slaughter, which should see lower average prices.
- January slaughter has been low, with more lambs likely in late autumn and spring.
- There is risk of prices moving back towards 700¢ in the spring.
Click on figure to expand
Click on figure to expand
Click on figure to expand *red line is average price projection for 2021.
Data sources: MLA, Mecardo
