An old colleague asked recently about budgeting for sheep sales, and whether there were some useful rules of thumb available. This article looks at the ratio of mutton to lamb price with such a rule in mind.
With the increase in lamb production in Australia in recent decades the relative proportion of sheep in the combined sheep and lamb slaughter numbers has declined. In the 1970s, sheep made up half of the slaughter numbers. During the 1990s, as the flock was downsized from late 1980 levels, sheep made up 60% of slaughter numbers. As lamb production increased during the past two decades, this proportion has dropped to 25-30%. Lamb is now the well and truly dominant sheep meat.
As the proportion of sheep to lamb has dropped, from high levels in the 1990s, the price of mutton in relation to lamb has trended higher. Figure 1 shows a monthly series where the NSW saleyard per kg price for mutton is expressed as a ratio of the trade lamb quote, with the calendar year average overlaid. While there is plenty of variation within the season, above and below the average ratio, the annual average ratio shows a rising trend from around 0.3-0.4 to around 0.7. This means the mutton price has trended up from being around 30-40% of the lamb price in the 1990s to around 70% of the lamb price.
Apart of the within year volatility in the mutton to lamb price ratio, there are also some big variations in the annual average ratio. The most obvious, and fresh in the memory, example is 2023 into 2024. Figure 2 shows the annual average mutton to lamb price ratio (line series using the RHS) and the variation in small ruminant (sheep, lambs and goats) slaughter numbers compared to a rolling 25 year average for the past two decades. The rolling 25-year average is a crude proxy for the normal abattoir throughput of small ruminants, allowing us to see periods of under and oversupply. In periods of undersupply, the mutton-to-lamb price ratio rises above 0.7, towards 0.8. In periods of excess, the ratio (during the past 20 years) the ratio drops to 0.45-0.5. Change in supply accounts for 60-70% of the change in the mutton to lamb price ratio, so supply is the key driver.
As mentioned above, there are considerable variations in the mutton to lamb price ratio within years. Figure 3 takes a look at the seasonal pattern of these changes for the past two decades. It shows the median and average seasonal effect on price by calendar month. June through August are the months when the price ratio tends to be strongest, with the weakest time being November through March.
Returning to the original question which sparked this article, when budgeting a price for mutton the rule of thumb should be to use 70% of the assumed lamb price (per kg), adjusted for the month the sheep are planned to be sold in. A discount of 5% (to give 65%) seems sensible for the November to March period, and an additional 5% for the June to August period (giving 75%).
The budget still requires an estimated lamb price, and a guess at whether the supply of sheep and lamb will be boosted by dry weather or reduced due to better seasonal conditions.
What does it mean?
The mutton to lamb price ratio helps simplify budgeting for sheep meat income. It also helps de-mystify the sheep meat market, showing the normal relativity of these two sheep meat prices and how variation in Australian domestic supply is the key driver of change in the ratio.
Key Points
- If it is not too wet and not to dry the mutton price per kg will be around 0.7 of the lamb price per kg.
- There is a seasonal pattern in this ratio – being lower late and early in the calendar year and higher in the middle of the year.
- Change in supply of sheep and lambs going to slaughter is the key driver of change in this ratio.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: ABS, MLA, ICS, Mecardo
