AUSTRALIAN sheep producers should not be concerned about the ability of domestic and export markets to pay the current high prices for lamb and mutton, Meat & Livestock Australia director Jason Strong said last night.

At the Australian Sheep and Wool Show’s Lambition dinner, Mr Strong gave some insights on why domestic consumption and retail price dynamics of beef, now applied to lamb at retail.

Mr Strong outlined how his parents in the 1970’s were the first to sell lambs for $10 at Walcha in New South Wale’s New England region.

“In the ‘70s, the day that lambs cracked $10, their pen was the first up in the sale.

“I can remember Dad for many years telling about this $10 mark that they hit, I’m sure he would be very interested if he was about to hear of lambs making $350 and more.”

Mr Strong was asked by Lambition dinner master of ceremonies Peter Lewis if there was “a bit more in it”. Mr Strong said there had been a lot of discussion about lambs reaching $10 a kilogram (cwt) as a forward price, but that prices reaching that level in saleyards in recent weeks demonstrated how it was due to supply and demand. Coles earlier this month released a $10 a kilogram contract for August delivery of 18-26kg new season lambs to Colac in Victoria and a $9.80 offer for lambs delivered to Gundagai in New South Wales. But last week trade and heavy export lambs consistently made $9-$11 a kilogram in most saleyards.

“To have a price like that this early against a sale for later in the spring is something we haven’t seen before, so that highlights how this is so much supply and demand.

“However, there are some really big dynamics that underpin it.”

He said the big drivers of sustained high prices on lamb were the types of global and domestic consumers and their capacity to pay, as well as the size of the flock.

“So any speculation on where it goes from here, upwards, is pure speculation and nothing more.

“I think what we can say is when you look at the global demand, at the available product, when you look at the number of sheep that we have and we look at the current slaughter numbers, there are quite a number of big contributors to the supply and demand drivers that says we are going to have a lot of strength in the market for a period of time.

“We’ll get some volatility, but volatility off $10 is…you know, we can live with that.”

Big sheep meat markets suit small Australian supply

Mr Strong said Australia exported 450,000 tonnes of lamb and sheep meat annually and combined with New Zealand exports 70 percent of the world’s sheep meat, although sheep meat is still a “very small” protein globally.

“But the big benefit we’ve got is markets like China and the US particularly — big populations with groups of people which have the capacity to pay and have an interest in buying our lamb products and they are certainly big drivers.

“In the whole scheme of things, as a reasonably small producer in the global protein demand, but a large exporter, those markets can have a disproportionate benefit to us, with a small portion of their population having a high demand for our product, which is what we are seeing, particularly in the US.”

Mr Lewis suggested there would be collateral damage at the supermarkets and butchers as the price continued to rise and asked Mr Strong if Australian consumers — “Fred and Freda Stringbag” –understood the background to the higher retail prices.

“No, they don’t; however, there has been a bit of discussion about we should be concerned about the high retail prices, I actually don’t think we should be.

“I don’t know why we should be concerned or scared of higher prices being paid by our consumers when we produce them a high quality consistent product,” he said.

“It puts a big chunk of obligation back on us (MLA) supporting those consumers in the way that we support marketing campaigns and the sale support programs – it puts a lot of pressure on those programs, but I don’t think we should be scared of it.”

Industry response to price pushback is important

Mr Strong said the industry should not be naïve about lamb price fluctuations.

“There will be some pushback on price, definitely — pushback on volume because of price, but how we respond to that becomes really important and it’s what we use as measure.

“So if the only thing we are concerned about is domestic consumption and we are going to drive all of our security on how good we feel about our system or this part of the industry, based on the number of kilograms of lamb eaten by domestic consumers, then yes, be concerned, but it’s a crazy measure.

“And we’ve got some really good examples on the beef side where you will see people produce some consumption graphs, particularly up to 2014, where we had about a 10kg reduction in beef consumption, and they are great graphs to bash us with..

“So since then our export sales have risen and if you overlay price — because the other thing that has happened is that chicken (consumption) has tripled in the same time.

“So you put those two things together and say look at this – the industry is going terrible, but you then overlay price and in the same period of time and out to 2019, chicken (consumption) has tripled in volume and the price is exactly the same, give or take a couple of cents – $5.

“Beef on the other hand, has gone from $10.30 or $10.40 a kilogram (at retail) and it is now a tick under $20 – so yes they eat 10kg less and they pay about twice as much for it.”

“So we would absolutely love more Australians to eat more beef, no question at all, but if to that we have to trade off half the price, I think we can get used to them only eating 27kg; it’s not like they are not eating anything.

“We haven’t been in this position with lamb before, but these are the sort of things we’ve got consider; about how we measure these things.”

He said looking at domestic consumption of lamb is instructive, but the broader drivers had to be considered.

“We’ve got high prices because we’ve got lower supply — our kill numbers are about 20pc down on what they were last year, on lamb and 19pc down on mutton – but we’ve got significant increase in demand from high value export markets.

“So we’ve got to support the export markets, we’ve got to make sure we can supply what we have and extract the maximum price we can, and support our domestic consumers in the best possible way,” Mr Strong said.

“I’m not sure they are going to be excited about how much they are paying for lamb, but let’s actually support them in doing that and make that it’s consistent, and make sure that they get what they are expecting when they do outlay $50 for cutlets.”

Mr Strong did not believe that the sheep flock was being reduced because of the high prices.

“The flock (and the cattle herd) is being reduced because we are in a rip-roaring drought and we have been for a couple of years across a massive chunk of the country.

“The flipside is that we just currently have higher (sheep meat) prices in this environment than we have ever actually had before when we have been in this satiation on both the cattle and the sheep side.”

He said significant rain would lead to the retention of more ewes and an increase in lamb supply.