Sheep flock to hit a 116-year low, lamb exports to hit a record high

These are among the key forecasts in Meat and Livestock Australia's first Sheep Projections report for 2020.

MLA senior market analyst, Adam Cheetham, said the national flock was forecast to fall 3.5 per cent to 63.7 million head by next June, the lowest number since 1904.

The sheep flock has nosedived by 12pc since mid-2017 prior to the latest drought.

While the lamb slaughter was forecast to drop to 21 million this year - 8pc below the pre-drought peak in 2016 - Mr Cheetham said production was expected to be maintained at 500,000 tonnes.

"Lamb carcase weights are forecast to rise 2pc to 23.8kg a head in 2020," he said.

"This is due to the growing prevalence of supplementary feeding or lot feeding lambs, improved pasture availability and strong price incentives to feed lambs to heavier finished weights," he said.

As a result lamb exports were predicted to rise 2pc to a record 288,000 tonnes as red-hot international demand and a soft Aussie dollar continued to divert product from the domestic market.

But a predicted 22pc slide in the sheep slaughter to 7.2 million would not offset a lift in carcase weights of 2pc to 24.7kg with mutton production forecast to fall 21pc to 178,000 tonnes.

"Mutton (export) shipments are forecast to decline 22pc to 143,000 tonnes," Mr Cheetham said.

Mutton production could tumble further if the southern sheep production regions received average to above-average rainfall in the first half of 2020 because producers would step up the pace of much-needed flock rebuilding.

The MLA said sheepmeat processors were again looking down the barrel of extremely tight supply this winter and may have to increase their mid-year shutdowns in the absence of consistent lamb numbers and the expected decline in sheep slaughter.

Mr Cheetham said global markets continued to reflect robust demand and constrained supplies from Australia and NZ, the two dominant sheepmeat exporters, which would keep prices at historically high levels.

NZ had a flock of 27.4 million in June last year and numbers and production weren't expected to grow in the short-term.

While the export outlook for both lamb and mutton looked extremely rosy, Mr Cheetham said uncertainty regarding global trade policy and the risk China could lose some of its appetite for meat imports because of the economic impact of coronavirus and African Swine Fever could not be disregarded.

An outbreak of coronavirus has caused a virtual shutdown of China so far this year with streets, shops and restaurants almost deserted.

China has become Australia's biggest volume export market for sheepmeat and its fierce demand in recent years has sent sheep and lamb prices skyrocketing.

Australian sheepmeat exports to China surged 42pc in 2019 to record 152,700 tonnes.

However, demand in the US, our other major sheepmeat market, remains strong, particular among millennials who are keen to try premium lamb products.

Lamb exports to the US were up 3pc to 58,500 tonnes last year.

The outlook for exports to the Middle East was mixed but MLA said the United Arab Emirates and Qatar, the two largest lamb markets, had maintained their lamb volumes and between them they now accounted for more than 60pc of Australian lamb exports to the region.

The Middle East had a growing young, urban population whose food demand cannot be met by the limited agriculture capacity of the region.

While this will underpin a need for imported meat, the market remained vulnerable to political instability, conflict and the price of oil - all of which will continue to shape demand across the region in 2020, MLA said.