National sheep slaughter numbers have run hot for the last seven weeks on the back of intensifying dry conditions across many of the nation’s key sheep production areas.
For the entire year up until August we saw sheep slaughter outstrip last year’s levels for every month to July.
August tipped over the one million head slaughtered and September will end up much stronger again.
According to Mecardo analyst Angus Brown, there is little chance the annual sheep slaughter being under eight million head.
“Five-year average sheep slaughter for October to December will see over 9.2 million head for the year,” Mr Brown said.
“Even the lowest October to December sheep slaughter on record, from 2011 will see annual rates at 8.3 million head.”
According to Meat and Livestock Australia’s (MLA) Market Intelligence Manager, Scott Tolmie, it has been a year of extremes for the Australian lamb market, with prices soaring into uncharted territory due to strong demand meeting tightening supply.
“Lamb prices have been breaking records as they smashed through the 700c and 800 cents per kilogram carcase weight marks for the first time,” Mr Tolmie said.
MLA sheep projections show annual lamb slaughter numbers at 22.9 million head for 2018, up two per cent on 2017.
Their sheep slaughter forecast mirror’s Mecardo’s, predicting to to reach 9.3 million head, up 23pc on 2017 levels.
“Poor seasonal conditions and high feed costs have led to a waning supply of finished lambs as the year has progressed,” Mr Tolmie said.
“This, combined with strong international demand, has resulted in fierce competition for a diminishing supply and driven up prices across the board.”
He said the dry conditions drove increased lamb slaughter for the first half of the year, spiking in the second quarter of 2018 as conditions worsened and producers looked to destock.
The numbers peaked in June with the highest month of lamb slaughter on record.
But lamb slaughter has fallen in recent months due to the delay in new season lambs entering the market.
With no indication of improved seasonal conditions in the short-term, reports suggest there will be greater numbers of light weight, unfinished new season lambs coming onto the market this year.
“The timing and quality of the new season lamb crop will have a large impact on prices for the rest of 2018,” Mr Tolmie said.
He said while strong lamb and mutton prices have been a motivating factor to maintain or build flock numbers, the lack of rain across much of Australia has put a lot of pressure on producers to de-stock or supplementary feed.
Carcase weights lighten
The ongoing dry conditions had also placed downward pressure on carcase weights, with the national average lamb carcase weight for 2018 forecast to be 2pc lower than 2017 with the average sheep carcase weight down by 8pc, at 23kg.
Mr Tolmie said in terms of lamb production, lighter carcase weights are expected to offset the year-on-year rise in slaughter in 2018.
Total lamb production forecast for the year is 511,000 tonnes carcase weight (cwt), which is very similar to year-ago levels.
“Higher sheep slaughter, only partly offset by lighter carcases, has lifted forecast mutton production to 213,000 tonnes cwt for 2018 – an increase of 13pc from 2017,” Mr Tolmie said.
Record export prices and volumes
Strong global demand for Australian sheepmeat, combined with the softer Australian dollar and constrained domestic supplies out of New Zealand, have supported record export volumes and values.
Exports between January and August increased 12pc, to a record 183,000 tonnes shipped weight (swt), while mutton shipments surged 25pc, to 105,000 tonnes swt.
“The unit value of Australian lamb exports for the year-to-July reached new record highs, at A$8/kg, and was mirrored in mutton, which climbed to A$5.88/kg for the same period,” Mr Tolmie said.
“These factors saw the value of Australian sheepmeat exports last financial year hit new heights, at A$3.29 billion, up 24pc year-on-year.”
National flock back to decline
With the 2018 slaughter estimate now well over nine million head any flock gains that Australia had made in 2017 are set to be wiped off in 2018.
“The ramping up of sheep slaughter will no doubt see the flock decline,” Mecardo’s Angus Brown said.
“The extent of the decline will depend on marking rates, but anecdotal evidence suggests these are not going to offer much support to the flock.
“We could realistically see all of the flock gains made in 2017 wiped off in 2018.”
In its latest Agricultural Commodities quarterly released last week, the Australian Government’s agricultural commodity forecaster, ABARES, predicts that sheep numbers will fall by 2.3 million head by the end of 2018/19, following a 700,000 drop over the 2017/18 season.
Mr Brown said looking further down the track, we are going to have to see a contraction in sheep supply and possibly lamb supply.
“In recent months heavy sheep supplies haven’t seen low prices, but the discount to lamb has been large,” he said.
“The mutton discount to lamb could get to as little as 20-30pc as seen in 2010-11.
“It depends on where lamb prices end up, but mutton could get very expensive when it rains.”