Why lamb prices are so high despite big slaughter numbers

The record prices seen in the lamb industry this year are defying the long-accepted logic of supply and demand. We break down the key figures.

The record prices seen in the lamb industry this year are defying the long-accepted logic of supply and demand.

It’s usually the lack of an agricultural commodity that increases its value - think the spike in hay prices during south-eastern Australia’s current drought, which are at least double what they were even a year ago as producers scramble to find fodder.

But in the case of lamb, there’s no lack this year despite dire projections numbers would run out.

From January to the end of May, eastern state processors killed 9.23 million lambs, up marginally on last year but 32 per cent higher than the same five-month time frame in 2023, a year remembered for its low prices.

If the supply-demand equation followed what economic theory says it should, then that bigger supply of lambs should have suppressed prices.

However, prices this winter are 80 per cent higher than in 2023, still holding above 1000c/kg despite supply being up more than 30 per cent.

It’s hard to understand, therefore, that when lamb supply was much lower in 2023, prices were also down.

Industry records show that in September of that year, history was written not for record highs but disheartening lows.

The light lamb indicator slid to just 287c/kg carcass weight and the restocker indicator to 250c/kg carcass weight figures not seen since 2007.

And it was no better for killable stock, with the trade lamb indicator dipping to 433c/kg carcass weight and the heavy lamb indicator to 451c/kg carcass weight, the lowest nominal price since 2014 and 2013 respectively.

Yet now there are more lambs, and they are making record rates.

Increased supply has not decreased prices - the opposite has happened.

Demand from export markets has kept competition strong, as processors fill contracts to supply markets including the US, the Middle East, North Africa and China.

Meat and Livestock Australia global market analyst Tim Jackson said year-to-date figures until the end of May showed the nation had exported 157,000 tonnes of lamb, up slightly from last year (155,000 tonnes) but 34 per cent higher than the 117,000 tonnes sent in a similar period in 2023.

Mr Jackson said there were a number of factors coming into play.

“There have been several influences from the global market,” he said.

“The declining cattle herd in the US States means overall prices there are higher, and that has boosted demand for other proteins, like lamb.”

The lower supply of lamb from New Zealand was also playing its part, with its export-graded lamb slaughter down 8 per cent in the year to April, and production down 7 per cent.

Mr Jackson said lamb prices were subject to a range of influences.

“Supply and demand dynamics do work themselves out over time and the exchange rate is part of it, but certainly it’s been a surprise to many just how strong the market has been this winter,” he said.

Lamb prices are dramatically higher than two years ago, despite increased yardings. Picture: Zoe Phillips

From a processor point of view, the news is mixed.

Australian Meat Industry Council chief executive Tim Ryan said lamb prices had witnessed a significant recovery since late 2023, underpinned by strong international demand and supported by investment in processing capacity.

“Many processing facilities are now operating at expanded capacity, following investment in workforce development and capital upgrades since the Covid-19 period,” he said.

And while large portions of Australia’s lamb-producing regions continued to face drought conditions, Mr Ryan said global demand had been supported by expanded access to overseas markets, such as the recent increase in China listings and enhanced access to the Middle East.

As exports continue to rise, the local market is pushing back.

“After abundant supply in the early months of the year, winter has brought a tightening in availability, pushing prices into record territory,” Mr Ryan said.

“We are now seeing this recent spike in farm-gate lamb prices face resistance at the domestic retail counter, with our butcher channel finding it difficult to pass on the lift to spend-thrift consumers.”

Barnawartha producer Allan Coyle sold lambs in June 2023 that made $169. Similar weight lambs sold on Monday this week for an average of $262 at Corowa and the week before, averaged $270.

Brothers Allan and Colin Coyle, both from Barnawartha, were disappointed with diving lamb prices in 2023, but Allan sold similar lambs this week at Corowa for $262 in a huge turnaround in prices.

Mr Coyle said it was hard for the entire industry for prices to jump around so much.

“It’s great rates for those who have stock to sell now, but you think about the processors, who paid $262 for our lambs, then have to add transport and killing costs and then sell the meat,” Mr Coyle said.

“It must be very hard for them to make money.

“But on the other hand, when you are getting $10/kg for lambs like we are now, it’s compensation for the rates we got two years ago, which was probably more like half of that.”