Australian agriculture outlook 2024: Sheep

From the field

A tough six months for the Australian sheep industry has been driven by a limited capacity to process the large national flock. Lamb prices are expected to see some recovery in the new year while the outlook for mutton remains subdued. Production is expected to remain relatively high in the first half of 2024 but is expected to fall from the high levels seen in 2023.

Ryley Verley, Agribusiness Relationship Manager – South Australia

Supply

Australian lamb production is likely to fall from 2023 levels but remain relatively high throughout the first half of 2024. Dry seasonal conditions, a larger sheep flock, and the carryover of lambs due to the 2022 floods in eastern Australia have put the country on track for record lamb production in 2023. The national flock has grown 23 per cent over the past three years reaching almost 79 million head. After reaching the largest national flock in 15 years, it is likely this growth phase has come to an end.

Lamb slaughter has been high in 2023, averaging over 37 thousand head per week (+10 per cent) higher than last year. Processing capacity has improved in 2023 despite continued issues with labour availability. Lamb slaughter weights have been lower year-on-year due to the dry seasonal conditions and increased turnoff of light lambs. Average slaughter weight between July and September 2023 was 1 kg (-4 per cent) lower compared to 2022. The increased turnoff of light weight lambs has largely been exported as “bag lambs” (14-18 kg CWT) to the Middle East. The increased slaughter of light lambs in late-2023 will ease supply pressure next year as fewer lambs will be fattened over summer. El Nino conditions are expected to challenge feed production over summer and into autumn. As a result, average slaughter weight is likely to remain lower into 2024.

The influx of mutton sold for slaughter is also expected to slow in 2024. Growers are likely to hold on to current stock for joining, with the majority of turnoff to manage feed being completed already. There has been a huge supply of mutton throughout 2023, with weekly slaughter up almost 48 thousand head per week (+46.6 per cent) from 2022. The increased turnoff of older sheep was driven by the national flock rebuild reaching maturity and dry seasonal conditions forcing growers to destock. Mutton supply is likely to slow in 2024, although, dry seasonal conditions may force growers to cull dry ewes more heavily.

Demand

Australia’s appetite for lamb is returning as retail prices trend lower. Lamb retail prices had remained stubbornly sticky for most of 2023 even as saleyard prices collapsed. Cost of living pressures have limited domestic demand, with consumers looking to less expensive cuts of meat. Recently, retail prices have softened which has seen lamb become more competitive with chicken and pork. Retail prices are likely to remain lower into the start of 2024, which will see domestic consumption lift.

Global demand for Australian lamb is expected to remain steady in the first half of 2024. Demand is likely to stabilise as the poor economic outlook is balanced by the softer prices of lamb products. Export volumes have been strong throughout 2023, up 12.2 per cent on last year and 18.1 per cent above the five-year average. However, the average unit price of lamb exports has dropped throughout 2023. Lamb export unit price for September was down 21.1 per cent year-on-year. The US and China have remained the largest markets for Australian lamb in 2023. The year-to-date value of lamb exports to the US is down $198 million (-21.4 per cent) from the record levels in 2022 but remain above the five-year average. Exports to the US have softened this year as tough economic conditions reduced demand for premium meats and the food service industry. Demand from the US is expected to stabilise in 2024 as lamb retail prices soften and beef prices lift due to reduced supply. Lamb export volumes to China have strengthened in 2023, recovering from a drop off last year. Exports to China were lower in 2022 due to COVID shutdowns reducing demand. Chinese demand is likely to be lower in 2024 due to increased domestic pork production. Increased production in China will reduce their demand for imported protein. Although, the lower lamb prices may keep export volumes closer to current levels. Exports to the Middle East have jumped in the second half of 2023. The Middle East is the main destination for “bag lambs” and are benefiting from the recent high slaughter rates of light lambs. Despite the recent upwards trend, exports to the Middle East are expected to stabilise in the first half of 2024. Exports are likely to slow as the quantity of light weight lambs slaughtered is reduced. The A-UK FTA that was implemented at the end of May has provided access to another high value lamb market. Although export volumes to the UK have slightly increased, at this stage there does not appear to be enough demand to fill the 25 thousand tonne quota the agreement allows.

Mutton export volumes have been high throughout 2023 on the back of the increased slaughter rates. Approximately 98 per cent of Australia’s mutton is exported, with China being the major export market. Year-to-date mutton exports are up 47.6 per cent from last year and 36.5 per cent above the five-year average. The export unit price of mutton has fallen by 32 per cent compared to this time last year in response to the falling saleyard prices. The increase in China’s pork production is likely to weaken demand for mutton in 2024.

Price

Australian lamb prices are expected to strengthen in the first half of 2024. The National Trade Lamb Indicator fell sharply between January and September, falling 48.8 per cent to a low of 411 c/kg. Prices have since seen a slight recovery, gaining support from rainfall on the east coast. Prices are likely to improve as the flood of lambs seen in the second half of 2023 will slow due to the dry season seeing more stock turned off early. There are reports of forward contracts ranging from high 500c/kg and low 600c/kg already being offered by processors.

Although, the tough economic conditions of 2023 will continue impacting the demand side of the market. Demand for premium products and the food service industry is likely to remain lower in 2024. Export prices are therefore expected to remain subdued.

Mutton prices are expected to find some support in 2024 as the surge in supply wains. The National Mutton Indicator fell 78.4 per cent to 98 c/kg between January and the end of September, its lowest point since 2013. It appears as though we have found the bottom of the cycle, with prices improving since then. However, the dry seasonal outlook is likely to maintain pressure on prices as producers will be hesitant to grow their flocks.

Source: Meat & Livestock Australia

Source: Global Trade Atlas