Rapid flock rebuild puts strain on restocker lamb prices
Our expert analyst examines the impact on the market as farmers hold on to store lambs in the rush to rebuild the national flock.
Australia’s sheep flock is rebuilding faster than expected, and this is putting extra pressure on restocker lamb prices.
The key area to watch is store, or restocker lambs, which have been overheated in recent seasons.
After looking at current lamb and sheep slaughter levels, analysts for Meat and Livestock Australia have now concluded farmers are withholding extra numbers that will fast-track the sheep flock to 68.1 million sheep this year.
“This is an upward revision of 700,000 sheep on our February (forecast) as the flock rebuilds faster than initially anticipated due to revised lower lamb and sheep slaughter numbers,” MLA said last week in its sheep projections update.
While there is always an element of guesswork in predicting how many numbers are actually out there in paddocks, it is difficult to challenge the overall idea that the flock is rebounding from low drought levels.
The amount of ewes joined to lamb this year, and exceptionally low mutton kill, combined with the improved season, all point to more sheep being kept in production.
At the very least the MLA figures put some big picture framework around what is happening to Australia’s flock size.
To put the flock growth in context, it is necessary to look back at past years. From 2015 to 2019, numbers were as follows:
2015: 68.025 million.
2016: 67.54 million.
2017: 72.15 million.
2018: 70.60 million.
2019: 65.75 million.
Last year the flock was estimated at a low of 64 million.
Therefore, the latest forecast of the sheep flock growing by more than four million sheep in a 12-month period is not without precedent. In 2016 and 2017 it gained nearly five million.
A flock size of 68.1 million this year would bring it back to similar size to 2019. In the spring of that year, the heavy lamb indicator was tracking at about 760c/kg carcass weight.
Now a lot has happened in the world since 2019. The two big game changers are China, which has grown to be a major buyer of red meat and is currently in the midst of an ongoing protein shortage caused by African swine fever decimating its pig herd; and the Covid-19 pandemic which has distorted travel, consumer eating and spending habits around the world. So predicting lamb price trends going forward is pure speculation. But the segment likely to take a hit from the elevated levels it has been tracking at is store lambs.
The graph shows how store or restocker lamb prices tracked at an unusually high premium over heavy lamb values last year and until March this year as restockers chased the market for numbers.
At its most extreme last spring, the carcass price for restocker lambs was 150c/kg higher than ruling rates for heavy processing lambs.
Such a price gap between a store and finished lamb article was always unsustainable, and as the flock rebuilds and numbers become more plentiful, restocking demand will ease.
An added pressure on store lambs going into spring is the fact farmers who paid big money last year have struggled to make a decent profit margin. Especially as the autumn turn-off period for prime lambs did not deliver the price surges many farmers had banked on.
Or as one agent wryly observed when asked to comment on the lamb market during May: “What we have learnt is that paying $150 to $170 for store lambs doesn’t pay”.
Also working against light lambs are changes to the export lamb trade into the Middle East, often referred to as MK (Muslim kill) or bag lamb trade, which takes 14-17kg carcass weight lambs.
This was noted in the latest MLA forecast for the lamb industry: “Unfortunately, lamb exports to the Middle East remain constrained relative to levels seen early last year. Much of this is to do with the Qatari Government abruptly ending the subsidy on imported lamb, which came into effect at the end of December 2020. Australian lamb exports to Qatar averaged 1600 tonnes through 2020, but have hovered around 600 tonnes each month this year.”
There are already signs in the marketplace of light lamb prices easing to be more in line with slaughter lamb values.
It shows up in the latest saleyard price indicators, with restocking lambs listed at 809c/kg carcass weight, to be tracking closely against trade lambs at 810c/kg and heavy lambs at 800c/kg.
The price for restocker lambs has dropped 151c/kg on levels a year ago, whereas the heavy lamb price is back just 83c/kg, again showing how farmers have pulled back from paying premiums for store stock.
To refer back to the graph, until the drought broke last year store lamb prices were aligned with values for heavier prime stock and that is shaping up to be repeated this spring.
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