Lamb and mutton markets have been on the move lately, with mutton finally returning to what could be considered a ‘normal’ discount to lamb. We're not yet in winter, and May is usually a time of price pressure, which begs the question: where are we headed in winter, and what will be the starting point for new season lambs?
We know that lamb and mutton prices are largely driven by
supply, up to the point where they become too expensive for processors and the
export market. That point is hard to judge, but we’re not there yet.
Forecasting supply is fraught in a year where seasonal
conditions vary from excellent to exceptionally dry. Looking at rainfall maps,
we can see that there are a lot of sheep in the dry zones. Western Victoria,
most of South Australia and the eastern Riverina are all very dry. Producers
are again offloading surplus sheep and shrinking flocks, but at least they are
getting value for them.
In the search for a template, we went back to 2019. The flock was in decline, export demand was
strong, and April had been dry. The
difference to this year was some reasonable rain in key areas in March but
otherwise supply and demand fundamentals align well. In what is an interesting coincidence, 2019
was also a year when Easter was late, and the same week as Anzac Day.
Figure 1 shows how ovine supply played out on the east coast
in 2019. Strong first quarter supply rolled
into Easter and came out lower and declined to below average in June. We are yet to see last week’s slaughter
numbers, but it’s unlikely they’ll come out too much lower than pre-Easter.
The rapid decline in ovine supply in 2019 is interesting,
and it was no doubt assisted by some good May rainfall. At this stage, this isn’t something that’s on
the forecast.
Figures 2 and 3 show how lamb and mutton prices reacted to
tightening supply in 2019. The early
autumn lamb trend is eerily similar, before prices ramped up in May. For mutton, the market has gone earlier and
harder already this year.
What does it mean?
The missing ingredient in this comparison is May rain. Late May or early June rain will be sufficient to further tighten supply, as it is getting harder to draw stock out now, with only some areas receiving rain.
Predicting upside is always tough, but Lamb prices above 900¢ could occur in the short term, and mutton could easily remain in the mid-600¢ range. In terms of upside potential, lamb at 1000¢ and mutton at 700¢ would pull pricing up, which could push processor margins into the negative range as we see seasonal shutdowns. This would be a nice starting point for new season lambs after a couple of tough years.
Key Points
- Lamb and sheep supply trends look similar to 2019, when supply dipped sharply in winter.
- Prices are already strong, but there could be more upside as we move towards winter.
- Winter peaks could move towards record levels, but will be limited by export demand.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo
