Sheep prices: Danger abounds for lamb as sheep market bottoms

The danger of a rapid collapse in mutton prices is that price trends for lamb and sheep are connected. Full analysis here.

This was the sage response from a teenager, who asked about my work day and was told sheep prices at Bendigo had dropped dramatically by up to $50 in a savage blow to producer returns.

“Well it is Cyber Monday – everything is 30 per cent to 50 per cent off today,’’ said the child, who is addicted to online shopping.

If only it was that simple. Unfortunately, unlike shoes and fridges, the prices being paid for sheep and lamb are unlikely to be marked up again to full anytime soon.

The manner in which the sheep market was dragged back on Monday was a shock, even to agents who had anticipated a cheaper day following reports of mutton averaging less than 400c/kg carcass weight at Hamilton in the Western District last Friday.

There was no proper price floor in the sheep sale at Bendigo. The general lack of processing demand meant buyers were often pitching in low prices to try to find the base level of competition for different grades of mutton.

It created an erratic market, as shown by price results of $27 to $90 for the main run of lean Merino ewes in the 18-24kg carcass range, the National Livestock Reporting Service said.

On Monday, the rolling price average for mutton was listed at 396c/kg carcass weight by Meat and Livestock Australia. This figure will certainly decline as some of strong saleyard results in the past seven days (such as Forbes in NSW which was listed at over 500c/kg for sheep last Tuesday) drop out of the calculations.

If you focus on the two most recent southern sheep markets – Hamilton and Bendigo – rates of 250c to 350c/kg for ewes were common, and isolated sales were below 200c.

That shows what has happened, but finding clear answers to the question of “why” such a dramatic price reset is happening for sheep is more difficult.

The constant feedback from buyers is that meat sales are under pressure from record inflation and consumers having less money to spend as the cost of living escalates. The blunt message was ”we can’t sell it” – and that seems to apply to all types of red meat at the moment including mutton, lamb beef and goat.

With big numbers of sheep being pushed out as the season finally dries out, the pressure of supply to weak demand is dragging prices lower.

Exports of mutton during October were:

•Down 30 per cent on a year ago to the United States;

•Down 29 per cent to the United Arab Emirates;

•Down 42 per cent to Papua New Guinea;

•Down 22 per cent to Saudi Arabia;

•Down 23 per cent to Singapore; and

•Up 4 per cent to China (although year to date mutton sales until the end of October are down 11 per cent).

Overall mutton shipments from Australian exporters in October compared to a year ago were down 7 per cent at 13,353 tonnes, according to official statistics.

The US is Australia’s largest market for mutton, and news just out of America appears to support the argument of slow protein sales and pricing pressures. The amount of meat stored in cold storage across the US remains high. The latest data indicated there was 11 per cent more red meat in freezers than a year ago.

The bulk of it is beef, however lamb and mutton stocks are slightly higher than levels a year ago.

Reports suggest importers and wholesalers holding this meat are reluctant to buy more while they have expensive stock to clear, adding another suppression to current trading.

It was also announced late last week that the US government agreed to a Section 32 purchase of American lamb to help support farmers facing declining returns.

Under a Section 32, government agencies purchase lamb products (listed as loin chops, shoulders, roast legs and diced lamb) for “distribution to various nutrition-assistance programs. Basically it is a market support mechanism.

Picture: Zoe Phillips

It follows lobbying from the American lamb industry and rural senators earlier this year after US lamb prices dropped away.

It highlights the pressure lamb is under in the US, which is not a good sign for Australian farmers.

Lamb and sheep markets do have some price trend correlation. The gap between lamb and mutton prices is usually within the range of $2 to $3 per kilogram.

The danger of a rapid collapse in mutton prices is that price trends for lamb and sheep are connected. As this graphic clearly shows, usually there is a consistent price spread of around 200c/kg between the two meats. At present that spread has widened, suggesting either mutton prices have to firm or lamb prices ease to bring back the traditional alignment.

Source: Included

It is telling that the national saleyard indicator for mutton is 235c shy of year ago levels, where as heavy lamb is currently only back by 68c.

If mutton continues to track lower than 400c/kg it could potentially drag down lamb values.