Insights April 2023

Commodity overview

• The recent stability in lamb prices is set to continue through the next month as rain provides welcome support.
• Lamb supply will ease during April before increasing through to winter which will limit the typical winter price rises.
• A slowdown in US demand will weigh on lamb prices and make opportunities in smaller markets key to any upside for prices.

Stability is expected to characterise lamb prices in the coming month. Lamb supply has eased with average weekly slaughter in March down 2.3 per cent from February but on par with a year earlier. In addition, most sheep producing regions received decent rainfall in late-March which will help sure up autumn pastures following a dry summer. These factors contributed to the National Trade Lamb Indicator (NTLI) improving by six per cent since the middle of March. This was a welcome change following a 17 per cent fall across February and the first half of March. Prices are still relatively subdued with the NTLI 15 per cent lower than a year ago and 14 per cent below the five-year average. Further rainfall forecast for early-April should continue to offer support to prices. Supply is set to slow down further in April as public holidays reduce the number of working days for processors. Looking longer-term, lamb supply will likely increase and remain elevated through to winter. The results of Meat and Livestock Australia’s producer intentions survey indicates that there are still plenty of lambs to be sold in coming month. This could mean we won’t see the usual seasonal decline in supply in June and July. As a result of a flatter supply trend, the rise in prices typically seen in those months will not be as pronounced.

Another factor playing into recent lamb prices is the larger gap to mutton prices. The National Mutton Indicator (NMI) declined dramatically at the start of 2023 and has spent the last month within a range of 300-350c/kg. This places the NMI 34 per cent below the five-year average. The relatively poorer performance of mutton prices saw their discount to trade lambs grow to 51 per cent. This is much larger than the five-year average discount of 31 per cent. As a result, processors appear to be favouring mutton. This is reflected in March sheep slaughter sitting 40 per cent higher year-on-year. The greater preference for mutton has helped stabilise mutton prices following the drop in prices in January. It has also contributed to weaker processor demand for lambs.

Elevated mutton slaughter has driven a higher volume of exports. Mutton export volumes in March were the largest since November 2019 and 68 per cent higher than a year ago. China has been the primary market absorbing the increase in mutton supply. Exports to China in March were 125 per cent higher than a year ago. Mutton exports to the Middle East have been improving since October 2022 and leapt higher in March, returning to levels not seen since March 2020.

Export demand for lamb is becoming a concern. Export volumes improved by 10.5 per cent in March but were only 2.9 per cent higher year-on-year. China was the largest market for the month. This was the first time it has held that title since May 2021. A 7.8 per cent rise for the month and an 11.3 per cent decline in exports to the US helped China overtake the US. While exports to China were 38.8 per cent higher year-on-year, exports to the US were 29.6 per cent lower. However, there are encouraging signs in smaller markets. South Korea recorded their second largest monthly volume on record and are tracking 47.1 per cent ahead of last year for the year-to-date. Exports to the UAE are also performing well, up 32.4 per cent for the year to date. Tapping into demand in these markets will be key to the direction of lamb prices amidst an apparent slowdown in demand from the US.

Source: Meat & Livestock Australia