800px-Merino_ewes_&_lambs-crop

If we needed any indication that lambs had gotten too cheap, we have seen it over the last fortnight. Here we take a look at what the latest slaughter data means for prices going forward, and what yet another La Niña will mean for supply trends for the remainder of the year.

After the annual winter maintenance slowdowns saw both lamb slaughter and price tank in July, both have bounced back in August.  The lift in lamb slaughter rates recently has been seen across Victoria, South Australia and NSW, adding 20,000-25,000 head on the July lows.

Figure 1 shows the lift in east coast lambs slaughter has it back near the highs seen in mid-June.  While supply was part of the issue, artificially deflated demand due to shutdowns, seems to have been the major driver of the price decline.  Last week’s lamb slaughter levels only having been bettered once in August.

The lift in slaughter has been met with a lift in prices.  The increasing kill space has seen processors return to saleyards, and are now paying similar rates to June for lambs.  This suggests the overall demand situation, in terms of how much processors can pay for lambs, hasn’t changed much since early winter.

In 2017 we saw a very early increase in lamb slaughter, and figure 1 shows strong slaughter persisted through until the end of the year.  This was interesting, so we went looking for the reason.  NSW had a very dry winter and early spring in 2017, and it seems this drove consistent strong lamb supply.

Last year we saw a spike in lamb slaughter in mid-August, but it was short lived, with much lower than normal rates prevailing until mid-November.  The La Niña weather pattern last year, along with the push to rebuild flocks, saw producers hold lambs through the spring.

Figure 2 shows total sheep and lamb slaughter, and we look at this to get an idea of how much kill space is out there for ovine stock.  In December last year total ovine slaughter reached 468,000 head, this year it hasn’t pushed past 450,000.     

What does it mean?

The supply balance is going to be delicate this spring.  There are more lambs on the ground, and slaughter space is restricted.  However, international demand for lamb remains strong.  These factors suggest that prices are going to be volatile in the spring, especially in saleyards. 

Booking slaughter lambs in early where available will take some of the uncertainty out of the market.  Unless more slaughter space opens up, it’s increasingly looking like we might see prices trending lower in the spring, with the five year average giving a reasonable indication of where the trend might head.

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Key Points

  • Lamb slaughter has lifted in August, bouncing back towards June highs.
  • Current sheep and lamb slaughter looks to be close to the upper limit in the current environment.
  • More lambs and restricted slaughter space suggests we’ll see volatile prices in the spring.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources:  MLA, Mecardo

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