Last week Mecardo looked at the mutton market, and how it related to the levels of last year. This week we take a deeper dive into pricing and long-term supply, and how we might have to reassess what is a ‘good’ mutton price.
The
anecdotal evidence suggests that mutton isn’t hard to move for exporters, but
the margins on mutton aren’t great compared to lamb. Looking at slaughter patterns adds some
weight to this theory.
In absolute
number terms, there have been 1.74 million head of increased slaughter space
created for the year to date. Just over
74% of the extra slaughter space has been taken up by lambs, despite mutton
being cheaper year on year. This is a
pretty good indication that the export demand for lamb has lifted much more
than for mutton.
We’ve seen
the absolute price charts for mutton, so Figure 1 shows the mutton discount to
lamb Mutton has recovered from spring
lows somewhat, but remains around the 60% mark in terms of discount to lamb.
The levels
are similar to those of 2000-2009, which was a period of constant decline in
the flock (Figure 2). When the flock
went through a rebuild in 2011 and 2012 the mutton discount shrunk to the
20-30% range. A return to flock
liquidation in 2013 saw the discount widen again.
A lower
flock and a rebuild saw mutton recover ground again through 2015-2018. The 2018-2021 flock liquidation came from a
lower peak but also coincided with the African Swine Fever (ASF) outbreak in
China, which saw demand for mutton peak.
As such the
2018-2021 period saw good mutton supplies, weak demand from restockers, but
also a relatively small mutton discount to lamb.
Since late
2022 demand from restockers for sheep has declined, and the flock has moved
into liquidation mode. Add to this
recovery of the Chinese pig herd, and in terms of supply and demand, we are
back in the 2007-08 territory.
Looking
forward Figure 2 shows the flock at a 16-year high, and supply should remain
strong for some time yet. The lack of
live exports from 2028 will add local mutton supplies, with flocks being liquidated
in the west, to match supply with slaughter demand in WA.
What does it mean?
The mutton price at 50-60% to lamb appears to be its lot for the time being. Producers have enough sheep, and there is little incentive to take country off cropping or beef. Increased world beef prices should have an impact on mutton demand, but we haven’t seen it yet.
Mutton looks likely to be beholden to the lamb market for any improvement in prices in the near future.
Have any questions or comments?
Key Points
- Increasing slaughter space is being used largely for lambs rather than mutton.
- Comparing supply and demand to historical levels, the current mutton discount to lamb looks about right.
- Mutton likely will require stronger lamb prices for any increase.
Click on figure to expand
Click on figure to expand
Data sources: USDA, Nutrien, Mecardo