Lamb can sail through the coronavirus crisis says Rabobank

Covid-19: Sheepmeat is looking okay but wool prices likely to fall further

Coronavirus
CORONAVIRUS RISK: Rabobank says any outbreaks of coronavirus in Australian abattoirs would reduce both processing capacity and demand for lambs and sheep.

CORONAVIRUS RISK: Rabobank says any outbreaks of coronavirus in Australian abattoirs would reduce both processing capacity and demand for lambs and sheep.

Aa

Rabobank says the sheepmeat industry should survive the coronavirus emergency largely unscathed but wool is in for more market pain.

Aa

Rabobank has good and bad news for the Australian sheep industry - coronavirus is unlikely to badly hurt the strong lamb market but wool prices are likely to soften further before rallying late this year.

The specialist farm bank's senior animal proteins analyst Angus Gidley-Baird said sheepmeat prices would remain strong through 2020.

However, he said wool prices were expected to ease towards 1100 cents a kilogram clean in the middle of the year before recovering at the end of 2020 and reach 1400c again by mid-2021.

Mr Gidley-Baird said the Australian lamb industry was more exposed to Covid-19's global economic downturn than some other meats but believed historically low sheep numbers would counter the impact.

"We've got the lowest sheep inventory for over 75 years and the reduced lamb and wool production we are seeing as a result will support prices for 2020," he said.

Reduced slaughter numbers - lamb slaughter was down 12 per cent year to date and sheep slaughter was down 26pc - indicated many producers were rebuilding flocks now the season had turned, he said.

The "phenomenal" increases in lamb prices earlier in the year - 35pc higher year-on-year - were not unusual under a supply constraint scenario but Mr Gidley-Baird expected these prices would soften as the year progressed.

Rabobank's senior animal protein specialist, Angus Gidley-Baird

Rabobank's senior animal protein specialist, Angus Gidley-Baird

Australia would benefit from its strong domestic lamb market but with 65pc of lamb and almost all mutton and wool exported, he said global markets would play heavily on the industry.

Social restrictions had severely impacted foodservice and restaurant demand with foodservice traffic in China in February down 80pc although signs of recovery were now being seen.

"A large bulk of Australia's product into the Chinese and US markets - 60 to 65pc - is eaten out of home with Australian lamb sold into the US heavily focused on the higher end restaurant market, making it particularly vulnerable to the global economic slowdown," Mr Gidley-Baird said.

As such, he said, the reduction in foodservice could have a larger impact on lamb over other proteins, as it was more exposed to the premium red meat markets.

Strong demand from consumers stripping supermarket aisles had fuelled prices in late March but Mr Gidley-Baird said that demand had now dissipated and lamb prices had dipped.

He forecast heavy lamb and mutton prices to follow a similar trajectory to last year, expecting prices to come off their highs from earlier in the year, before picking up again through winter - albeit no higher than the mid-year peaks experienced in 2019.

"Given our supply situation I don't expect prices to drop dramatically unless we were in the very unfortunate situation where multiple processing facilities ended up closing due to reduced margins or a Covid-19 outbreak," Mr Gidley-Baird said.

He said a weaker Australia dollar, despite a recent rise above US60c, would support the local industry through slower global economic conditions.

MORE PRICE PAIN: Rabobank expects wool prices will continue easing this year due to the Covid-19 pandemic.

MORE PRICE PAIN: Rabobank expects wool prices will continue easing this year due to the Covid-19 pandemic.

Comparing the current situation to the global financial crisis of 2008-2009, he said the wool price plummeted 34pc, in US dollar terms, in the three months following the collapse of financial institutions in 2009, and 12pc in Australian dollar terms.

Australian lamb prices dropped 24pc over those same three months during the GFC.

However, Mr Gidley-Baird said beyond this sharp sudden decline, the price movements across the year were less pronounced.

In Australian dollar terms, wool dropped 6pc from the start to the end of 2008, 10pc through 2009 before increasing 14pc through 2010.

Lamb prices actually increased throughout the period 2008 to 2010.

Mr Gidley-Baird said this historic data augured well for the current pandemic crisis and predicted Australian wool prices would fall on the back of weaker demand before recovering in late 2020.

This forecast, he said, was based on the assumption of decreased US and Chinese consumer sentiment, plus severe economic contraction over the next six months before picking up late 2020 into early 2021.

Other global considerations included an assumed decline in cotton prices (before rising again) and a decrease in Australian wool production - assumed to be down two to three per cent year-on-year - and Chinese wool imports.

"Interestingly, last year China had one of the lowest volumes of wool imports in the past 10 years, so we expect stocks in China to be relatively low, driving stronger imports as factories start to open up again," Mr Gidley-Baird said.

He said wool prices were expected to continue to ease towards 1100c through to the middle of the year before picking up towards 1400c in late 2020-21 as economic conditions improved.

Aa

From the front page

Sponsored by