Insights August 2024

Commodity Overview

• Lamb prices should hold above average levels through the next month before coming under pressure from an influx of new season lambs from September.
• As lamb supply rises through spring, support will continue to come from the Middle East and US who are leading a strong demand outlook for lamb.

As winter draws to a close, attention in lamb markets will turn to the influx of new season lambs. Weekly lamb slaughter has eased 15 per cent in recent weeks from a record high of just over 511,000 head in late-June. This is in-line with the typical seasonal trend in lamb supply. Processor shutdowns for winter maintenance have also played into lower slaughter. Despite the decline, slaughter is still very high for this time of year. Slaughter in the first week of August was 34.3 per cent above that week’s five-year average. Slaughter is expected to ease further in the next month as old season lamb supply comes to an end. New season lambs typically arrive on markets in earnest from September. However, the influx of lambs could be delayed this year due to dry conditions. Approximately two-thirds of the national sheep flock exists in areas which have experienced below average rainfall in the past six months. Most notably are areas in south-west Victoria and south-east South Australia. Dry conditions have likely reduced lambing rates compared to recent years and may delay lambs reaching target weights in spring. Lamb supply is expected to rise from September but there could be a later and slower influx compared to last year.

Lamb prices are expected to remain firm through the next month before encountering some downward pressure from rising supply as spring unfolds. Fortunately, prices are set to enter spring in a strong position. The National Trade Lamb Indicator (NTLI) reached a peak of 876c/kg in mid-July. This was the NTLI’s highest point since February 2022 and represented a 49.9 per cent increase from March. It was also a 113 per cent rise from the low point in September 2023. Prices have eased since then but currently remain 7.8 per cent above the five-year average. The NTLI typically falls by 11 per cent from August to October amidst the peak influx of new season lambs. Following this trend would cause lamb prices to dip below five-year average levels later in spring.

Strong demand is supporting lamb prices at above average levels amidst well-above average supply. Lower prices for Australian consumers are helping domestic demand remain firm and absorb elevated supply. In addition, export demand remains strong. The volume of lamb exports in July rose 7.8 per cent month-on-month to sit 20.7 per cent higher year-on-year. Growth is being led by the Middle East. Exports in July were double the volume of a year earlier. Another strong month of buying from Iran has seen it overtake the UAE to be Australia’s third largest market for the year-to-date. The US continued its strong year with export volume in July second only to the record volumes seen in May. Year-to-date exports to the US are 45.3 per cent ahead of 2023. Papua New Guinea, South Korea and the UK are also contributing to growing export demand. Chinese demand appears to have stalled. Export volumes in June and July were 12 per cent below the five-year average, whereas the overall lamb exports were 37 per cent above average. Economic conditions are likely keeping demand from Chinese consumers weakened.

Mutton prices are also expected to come under pressure from rising supply as the second half of the year unfolds. As with lamb, mutton prices have enjoyed a strengthening trend across the first half of 2024. The National Mutton Indicator (NMI) reached a peak of 483c/kg in mid-July. This was a 122 per cent increase from late-April. The NMI has eased since then and currently sits 23 per cent below the five-year average. Unlike lamb, mutton prices are experiencing weak export demand which is holding back stronger prices. China is the primary source of weaker demand with year-to-date exports down 29.5 per cent. This compares to overall mutton exports having grown 14.3 per cent. Malaysia, Saudi Arabia and the US are picking up some the slack, but weak Chinese demand will likely continue to weigh on overall mutton demand.

Source: Meat & Livestock Australia