Lamb prices to remain robust as Australia’s flock shrinks

Posted by James Ferre on 4th August 2008

Australia’s prime lamb producers can expect to receive strong prices over the next few years, however the nation’s flock is set to shrink to a size not seen since the beginning of last century.

The forecasts were included in Meat & Livestock Australia’s 2008 Sheep Industry Projections mid-year update, released today.

The MLA report also notes that a further decline in the breeding flock, a build up in farm debt and rising costs are likely to limit the prime lamb industry’s expansion over the coming five years.

In releasing the report, MLA’s chief market analyst Peter Weeks said the future of the lamb industry looks bright, however the continuation of the drought through a seventh winter and further rises in global grain prices have caused a lowering of projections for the sheep flock and supply. “Drought, and a noticeable shift of resources from sheep to cropping, is likely to have seen the national sheep flock fall a further 6.5 percent in the year to June 2008, to around 80 million head; making it the lowest Australian sheep flock since 1920,” Mr Weeks said. “Smaller declines in the flock are now anticipated, resulting in a base of around 76 million head by 2011.”

“After suffering a sharp fall in real farm cash incomes in 2006-07, with rising costs and debts, many lamb producers were simply not in a position to meet the very high cost of fodder and grain required to carry lambs over into 2008. Hence, supply is expected to be particularly tight through this winter, leading to a high seasonal spike in lamb prices,” Mr Weeks added. “However, the local and global demand/supply balance for lamb continues to tighten, providing the prospect of higher lamb prices and attractive returns to lamb producers once seasons improve.”

Providing seasons improve, lamb production is still expected to expand by 13 percent between 2008 and 2012, to a record 458,000 tonnes.

Demand for lamb this year remains solid, but is not as strong as initially anticipated, with growth locally and in overseas markets blunted by a sharper-than-expected economic slowdown in the US, Australia and Japan and a lower US dollar.

Rising retail lamb prices (reflecting tighter supply) and slower growth in consumer spending generally is expected to impact on lamb consumption in 2008, with a fall of six percent anticipated, to 231,000 tonnes.

However, despite higher prices, demand for lamb continues to lift in the Middle East, China, Japan and elsewhere in Asia.

Over the medium term, the underlying strong demand for lamb, and consequential production growth, should see both local consumption and exports increase, particularly to North America and Asia.

“Perhaps the most significant change in this mid-year update to the projections released in February is on the sheep side, with the ongoing drought and sudden lift in the lure of cropping causing a shift in resources out of sheep, particularly in WA and, to a lesser degree, South Australia and Victoria,” Mr Weeks concluded.