Economic downturn and strong flock numbers could dampen sheep and wool price

Heading into 2023, Australian sheep markets are coming off two consecutive years of strong production and flock recovery, following good seasonal conditions across much of the nation's sheep production zones.

"National lamb slaughter data supports this sentiment, with over 400,000 lambs processed each week in October, up almost 18 per cent on average on year ago levels," Alanna Barrett, ANZ Associate Director of Agribusiness said.

"Fortunately for lamb markets, the consistently high supply in the market throughout spring has been matched with continuing strong export demand.

"For lamb exports, figures to late 2022 have exceeded both 2021 and 2020 levels by around 5 to 10 percent, with the industry continuing to enjoy particularly consistent growth in the US market, along with a steady trade with China."

Continued wet weather has made for a challenging spring for many sheep producers, with logistical as well as animal health challenges arising from the ongoing rain events.

From disruptions to shearing programs, heavy worm and fly burdens, increases in foot issues, wool damage and flooding impacting pasture availability in some areas, there is no shortage of work for eastern states producers.

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"Going forward into the summer months and into 2023, the plentiful yet volatile supply is forecast to continue across both lamb and mutton categories, which is likely to keep fluctuating prices the norm from week to week," Ms Barrett said.

Overall, Australian sheep markets represent a story of two consecutive years of strong production and flock recovery, following good seasonal conditions across much of the nation's sheep production zones.

"For wool markets, the impact of volatile global economic conditions, with demand for discretionary items such as wool across key importing nations is under pressure, as the cost of living rises and economic uncertainly looms," Ms Barrett said.

"As the industry moves further into the 2022/23 season, wool production is forecast to continue to grow along with the national flock, which will not aid in the likelihood of any price recovery over coming months.

"Large price spreads continue between coarse and fine wools, playing into the favour of Merino producers 20 micron and under, who now make up 65 percent of wool tested, up 7.5 percent over the past 5 seasons."

Mutton throughput is also tracking considerably higher than previous years, with close to 150,000 head processed in the last week of October, representing an over two and half year high and demonstrating the strong position of the national flock, as surplus females find their way onto meat markets in numbers not seen since the drought induced destocking period throughout 2018/2019.

Fortunately for lamb markets, the consistently high supply in the market throughout spring has been matched with continuing strong export demand.

Although trading well below 2021 levels, and fluctuating regularly based on weekly supply, prices remain at a profitable level for producers, with the National Trade Lamb Indicator sitting in the mid 700 c/kg carcase weight (cwt) in late November.

This represents an approximate 150 c/kg cwt recovery since the large market drop seen in late July, early August, when prices found their way down to the low 600c/kg mark.

Producers able to finish lambs throughout late winter and the first two months of spring were rewarded by prices, with the spread between light and heavy lambs opening up to nearly 140 cents / kg cwt, with an average 81 c/kg cwt premium for heavy lamb for the Spring to date.

This is a direct contrast to the first six months of the year when heavy lambs were struggling to find price support as processing delays impacted through the supply chain.