DEMAND for Australian lamb is expected to be buoyant in 2014, according to the latest NAB Rural Commodities Wrap.

According to NAB’s June wrap, surging demand for lamb from China, with continued growth in Middle East and US markets, and less supply competition from New Zealand points to buoyant export orders for 2014 and into 2015.

Though lamb consumption by Australians continues to decline, annual shipments of Australian lamb set a new record for the second consecutive year in 2013 at 214, 000 tonnes, eclipsing the 189,000 tonnes record in 2012. The trend in lamb exports has been on a clear upward trajectory since the fourth quarter of 2012 and so far has yet to show any signs of slowing down, NAB said.

NAB agribusiness economist Vyanne Lai said that while the supply conditions might vary periodically with seasonal conditions and price signals for the rest of the year, demand prospects for Australian lamb and sheep meat are likely to stay buoyant for some time to come, especially in light of significantly improved market access for Australian live sheep exports.

“In aggregate, however, supply is more likely to tighten this year from the effects of high slaughterings for the past two years. Both supply and demand side factors are only going to reinforce each other in their upward effects on prices, with NAB expecting a substantial price rise for heavy lamb this year of around 30 per cent to 570 A$c/kg.

Ms Lai said lamb prices peaked in March 2011 then declined until the end of 2012. A strong build-up in the sheep flock over the wet years of 2010 and 2011 created a large buffer in the flock size that could be drawn down during drier periods. The unwinding of prices when drought conditions emerged 2012 was more pronounced than the “accumulation” period from 2008 to 2011.

But the turnaround in export conditions in 2013 altered the price dynamics to a large extent, with saleyard lamb prices actually rising by seven per cent in 2013 relative to 2012 even though slaughter rates were significantly higher. The interplay of strong exports demand and elevated number of slaughterings saw higher volatility in saleyard price patterns, but they have demonstrated an unmistakable long-term upward trajectory since bottoming out in late 2012.

Lamb slaughter rates remain high

Ms Lai said the high lamb slaughter rate continued into the first quarter of 2014, which hit record monthly rates.

“While they have since moderated, they remained at historically elevated levels in April and May.

“At this stage lamb and mutton production is likely to only be moderately lower than last year (-10pc), comprising a sharper contraction (-35pc) stemming from mutton after a phenomenal jump in 2013, and a minor increase (2pc) in lamb production.”

She said the sustained long period of high slaughters and poor weather conditions during the joining season have resulted in fewer breeding ewes and lower conception rates in 2014, which foreshadows a significantly tighter supply of stocks available for slaughter in 2015.

Lamb shipments in 2014 are expected to trump those of 2013 to set a new record, but this will be more than offset by a notable correction in mutton exports from their spike last year as farmers switch to retention mode.

Source: NAB