Outlook still favouring lamb

700 cents the new normal lamb indicator


Sheep
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The annual average Eastern States Trade Lamb Indicator is not expected to move below 700¢ for the next few years.

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Industry projections for the sheep flock and lamb slaughter by Meat and Livestock Australia are nothing but positive for prices.

The annual changes to lamb supply (slaughter) and price (eastern states lamb indicators) have shared a strong negative relationship since 2002.

A reduction in slaughter is synonymous with increased price levels while expanding supply through increase slaughter rates is consistent with falling prices.

This means that lamb slaughter levels are an important indicator of the potential Eastern States Trade Lamb Indicator (ESTLI) level for a given season.

The elevated ESTLI during 2018 shows that the demand for lamb has expanded further from the levels set during the 2015-2017 seasons.

If lamb demand can stabilise at these new levels, we can calculate an estimate of the annual average ESTLI based on the MLA slaughter projections for the next five years.

An estimated reduction of 2.8 per cent in lamb slaughter in the 2019 season to 22.25 million head puts the annual average ESTLI for 2019 at around 740¢/kg cwt.

A smaller sheep flock and reduced number of lambs for slaughter will offer strong support for prices at least until 2022 if demand can remain at current levels.

What does it mean?:

The annual average ESTLI is not expected to move below 700¢ for the next few years (Figure 1).

That’s not to say there won’t be a seasonal trough during each year that puts a six in front of the ESTLI at some stage during the annual cycle, but movements under 600¢ for an extended period of time are looking to be a bit of a rarity.

Falling lamb slaughter levels tend to coincide with higher ESTLI levels and MLA forecasts for the 2019 season points to a drop in slaughter of 2.8pc to 22.25 million head.

Falling lamb slaughter levels tend to coincide with higher ESTLI levels and MLA forecasts for the 2019 season points to a drop in slaughter of 2.8pc to 22.25 million head.

It’s not until 2022 that lamb slaughter is expected to breach 23 million head and start to weigh upon trade lamb prices according to Meat and Livestock Australia.

By that stage, lamb demand may have expanded yet again.

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