abare.gov.au - Australian commodities – June quarter . volume 15 . number 2 2008

Sheep Meat

The Australian weighted average saleyard lamb price is forecast to increase by 5 per cent in 2008-09, to an average of 345 cents a kilogram. This forecast reflects a tightening in domestic supply conditions for Australian lamb and steady demand growth in both domestic and export markets.

Contingent on a return to average seasonal conditions, the weighted average saleyard price of sheep is expected to increase by 10 per cent to 175 cents a kilogram in 2008-09, as producers retain sheep for flock rebuilding. If an improvement in seasonal conditions does not eventuate, sheep slaughter rates would be expected to remain high, putting downward pressure on saleyard prices.

Prices stronger in 2008-09 as production falls

Lamb prices are forecast to increase in 2008-09 as production falls in response to flock rebuilding. The number of lambs marked is forecast to decline in 2008-09, following two years of high sheep slaughter. In 2008-09, lamb slaughterings are forecast to decline by 4 per cent to 19.8 million with lamb production forecast to fall by 5 per cent to 410 000 tonnes.

Assuming improved seasonal conditions, sheep slaughterings in 2008-09 are forecast to decline by 24 per cent to 9 million and mutton production is forecast to fall by 25 per cent to 194 000 tonnes.

Favourable prices of cereals and other grains are also expected to contribute to the decline in production of both mutton and lamb in 2008-09. High grain prices are expected to result in a near-record area of winter crops being sown in Australia in 2008-09. This is expected to contribute to lower production of both lamb and mutton by reducing the land available for sheep enterprises.

Sheep numbers to remain relatively low

The Australian sheep flock is estimated to have fallen by 4 per cent to slightly less than 82 million by the end of 2007-08. The smaller flock size mainly reflects relatively high sheep slaughter throughout 2007-08, following a significant increase in slaughterings in 2006-07.

Strong lamb prices are expected to provide producers with incentives to begin flock rebuilding in 2008-09, provided seasonal conditions are favourable. However, the reduced size of the Australian flock will limit the rate at which this rebuilding occurs. Accordingly, the size of the sheep flock is not expected to increase markedly in 2008-09. If seasonal conditions are favourable over the next few years, the speed of flock rebuilding can be expected to increase.

Exports to moderate

n 2008-09, exports of Australian lamb are forecast to decline by 5 per cent to 158 000 tonnes. This forecast decline represents the first decline in lamb exports since 2002-03 and reflects lower expected lamb supplies in 2008-09.

Exports of lamb from Australia increased by more than 50 per cent between 1999-2000 and 2006-07. This growth occurred despite the total size of the Australian sheep flock declining by nearly 30 per cent over the same period. This growth in exports was achieved because of an increase in lamb production, mainly as a result of changes in the composition of the Australian sheep flock, with a greater proportion of ewes being joined to produce lambs for slaughter.

Export markets for Australian lamb are highly segmented with the largest single market, the United States, accounting for an estimated 26 per cent of total exports in 2007-08. Other important markets include the Middle East, the European Union and China. Strong export growth to these and other smaller markets has been maintained in recent years despite the appreciation of the Australian dollar. Between 1999-2000 and 2006-07, exports of lamb to the United States and the Middle East increased by 90 per cent and 104 per cent, respectively. Exports to China also increased sharply although from a relatively low base.

In contrast, exports by Australia’s major competitor, New Zealand, have not been increasing because of drought and a shift away from lamb production to other agricultural activities, especially dairy. Between 1999 and 2006, for example, the total number of sheep in New Zealand declined by 16 per cent and the number of dairy cattle increased by 22 per cent.

Australian mutton exports are forecast to decline by 25 per cent in 2008-09 as a result of higher domestic prices for Australian mutton arising from lower sheep slaughter and the assumed strength in the value of the Australian dollar against other currencies.

Live sheep exports to fall

Assuming a return to average seasonal conditions in 2008-09, the supply of sheep for live export is expected to decline as producers rebuild flocks. As a result, the number of live sheep exported from Australia is forecast to fall 12 per cent to 3.7 million in 2008-09.

Sheep meat outlook

2006

2007

2008-09

% change

Slaughterings

Sheep

’000

13 271

11 840

9 000

– 24.0

Lamb

’000

20 158

20 700

19 800

– 4.3

Production

Mutton

271

257

194

– 24.5

Lamb

413

433

410

– 5.3

Exports (shipped weight)

Mutton

162

160

120

– 25.0

Lamb

150

166

158

– 4.8

– to United States

2.3

Total sheep meat

– value

1 206

1 262

1 166

– 7.6

Live sheep

’000

4 138

4 200

3 700

– 11.9

Saleyard prices

Mutton

Ac/kg

136

159

175

10.1

Lamb

Ac/kg

326

329

345

4.9

f ABARE forecast. s ABARE estimate.