CONTINUED strong domestic demand is expected to underpin higher lamb prices next year until a forecast recovery in exports in 2018, according to Meat & Livestock Australia’s 2017 Sheep Industry Projections.

MLA’s Manager of Market Information Ben Thomas said the 2017 sheep meat outlook for Australia was “pretty positive”, although it was not a uniform picture across the year and producers who can adjust their program to seasonal market variation may be able to achieve price premiums.

The projections indicate the Australian lamb and sheep market will next year benefit from reduced supplies and positive demand from domestic consumers. They forecast a reduction in lamb slaughter, production and exports next year from a smaller ewe flock and lower lamb markings. Click here to get Sheep Central story links sent to your email inbox.

MLA said in 2016, prices have been assisted by a 6 percent year-on-year fall in sheep meat production.

“On the supply front, expectations are for Australian sheep meat production to lower again next year, which should instil confidence for producers,” the projections report said.

“This, together with a strong domestic market and some recovery in China’s demand, as well as in the US and the Middle East, should result in further rises in Australian lamb prices – which will make the fifth consecutive year.”

Click here to see how Australian trade lamb prices have fared historically.

NZ sheep meat production to decline in 2017

However, factors to keep an eye on are the significant price difference between Australian and NZ lamb prices, the projections report said.

“While NZ lamb production has been trending lower, the absence of a large domestic market has led to significantly lower prices than here in Australia, increasing competitive pressures from that market.”

MLA said the major limitation for NZ is production levels, which are expected to decline next year.

“Another risk is that, with Australian domestic retail prices approaching previous record highs, there may again be consumer resistance and a resultant lamb price correction.

“However, the difference this time is that the A$ and production are likely to decline, supporting prices, whereas following the previous record prices, both rose.”

Click here to see how Australian and NZ lamb prices have compared since 2011.

Lamb slaughter down 2pc in 2017

Mr Thomas said lamb slaughter is projected to be 22 million head for 2017, down 2pc from the estimated 2016 level.

“While this is a decline year-on-year, 22 million head is still in line with the long-term growth trend observed over the past decade.

“Breaking the annual processing down to a quarterly basis, it is anticipated that the June and September quarters will be when supplies are the tightest,’ he said.

“Lamb availability in the March quarter on the other hand, is likely to benefit from carry-over stocks from the final months of 2016, when extremely wet weather delayed many lambs coming to market.”

Domestic consumption higher despite high prices

Mr Thomas said Australian lamb production for 2017 is projected to ease 2pc to 492,000 tonnes carcase weight (cwt), and while this is a year-on-year decline, the volume is in the realms of record territory. Assuming average seasonal conditions and a return to normal lamb marking rates, the number of lambs slaughtered annually is expected to reach 23 million head by 2020.

“The Australian domestic market is anticipated to remain the largest consumer and account for 48pc of production, or 237,000 tonnes cwt, with many encouraging signs coming from the market.

“For instance, domestic per capita consumption has stabilised in recent years, while at the same time the weighted average retail price has been increasing,” Mr Thomas said.

“To put this in perspective, domestic lamb retail prices in 2016 averaged just 10 cents shy of the record high set in 2011, at $14.51/kg, and per capita consumption is 8pc higher now than what it was then.”

Lamb exports to ease 4pc next year

On the export front, Australian lamb shipments are anticipated to ease 4pc year-on-year in 2017, to 220,000 tonnes.

“While this will be the third consecutive year of slightly lower exports, volumes are still in excess of 200,000 tonnes – a level breached for only the first time in 2013. The major markets are likely to again be the US, China and the Middle East,” Mr Thomas said.

Mr Thomas said while there are strong demand indications from the domestic market, internationally, signals are mixed. The lifting of the government subsidy on imported Australian lamb in Bahrain would likely mean reduced volumes, while the UK pound remains low and US cold store volumes of sheep meat are currently down significantly from year-ago levels.

“Similarly, total Chinese sheep meat imports in 2016 were subdued due to high domestic sheep meat production in China, however, domestic production levels are anticipated to be lower next year.

“The earlier than usual Chinese New Year in 2017 has reportedly spurred demand more recently, with importers already beginning to build up stock levels,” Mr Thomas said.

“In-market reports suggest that importers are anticipating good demand for sheep meat during the upcoming cooler months.”

Export shipments to rise from 2018

MLA said lamb exports are forecast to increase from 2018, reaching a record 235,000 tonnes by 2020.

“The longer-term export outlook should be underpinned by further growth in demand in Asia, especially China, the US and the Middle East, a lower Australian dollar, diminishing New Zealand exports, and Australia’s projected growth in production.

“Uncertainty surrounds the impact of Brexit on access to both the UK and EU. If negotiations result in expansion of Australia’s meagre sheep meat access to these markets, it could provide a significant lift to exports and prices,” Mr Thomas said.

Click here to see detailed Australian sheep industry situation and outlook figures.

Click here to read the full 2017 Sheep Projections update.

Source: MLA.