Insights August 2023

Commodity Overview

• A strong supply of new season lambs entering the market is going to apply further downward pressure to prices over the next few months. Although the introduction of new season lambs may bring more buyers to the market.
• Processors will be increasing capacity following a slow down to complete winter maintenance.
• Export demand will be the major driver of price, as exporters seek to fill the gap left by the US.

Australian lamb prices are expected to remain subdued over the coming month after further declines over the past three weeks. The National Trade Lamb Indicator has fallen over 100c/kg since mid-July and is now over 300c/kg lower than the start of the year. Lamb prices may find support as new season lambs bring additional buyers to the market. However, the dry seasonal outlook may limit enthusiasm.

The fall in price is due to the increased supply seen since the start of the year. Lamb yardings for July totalled 665,272 head, which is down three per cent from June. However, yardings for the month were still up 4.6 per cent from July last year and are 5.8 per cent higher year-to-date. Processors have had a reduced presence in saleyard this month as they complete winter maintenance. Reduced processor activity has resulted in lamb slaughter being down 3.6 per cent from June.

Supply is expected to remain high through the second half of the year, as good numbers of new season lambs enter the market. High supply is expected as the national flock rebuild reaches maturity, with sheep numbers at the highest point since 2008.

Australian lamb exports have slowed over the past month on the back of reduced processing activity. Lamb exports for July were down 2.8 per from June but are tracking 7.8 per cent above last year for the year-to-date. This year has seen China return as the major destination for Australian lamb. Exports to China were reduced in 2022 as the country struggled with COVID-19 lockdowns. Lamb exports to China have reduced over the past two months, however this follows their normal seasonal export trend. Exports to the US increased by 4.3 per cent from June, a welcome increase for a third consecutive month. Year-to-date exports to the US are down 19.1 per cent as consumers grapples with rising cost of living pressures. This has reduced their demand for premium products and the food service industry. The US has historically been the major importer of premium cuts of Australian lamb. South Korea continues to grow as an export market for lamb, with exports remaining stable in July following an above average start to the year. The ability of exporters to fill the gap left by the US will be a major driver of price over the next few months.

Mutton prices have dipped 91c/kg over the past fortnight. A driver of this has been that processors reduced slaughter as they completed winter maintenance. Monthly mutton slaughter was down 37.2 per cent in July, however year-to-date slaughter was still 57.5 per cent higher than last year. Processors had been prioritising mutton due to good margins being achieved when exporting. Mutton prices are less affected by economic impacts on consumer demand but could come under pressure from increased selling ahead.

Source: Meat & Livestock Australia