Insights August 2020
Insights August 2020
- Sheep and lamb prices are expected to remain under pressure from subdued consumer demand and any strengthening in demand will largely hinge upon the easing of restrictions on foodservice outlets, both domestically and abroad.
- The onset of the spring flush of new season lambs starting in August could also add pressure to prices as supply lifts from a winter slump.
- Abattoir closures, particularly in Victoria, were a factor in driving prices lower in July and will continue to be a source of uncertainty in the price outlook as lamb supply rises in coming months.
- The announcement of restrictions to meat processing capacity in Victoria under stage four COVID-19 restrictions should provide some certainty to operators provided reduced throughput is able to offset reduced capacity.
Sheep and lamb prices have declined significantly since the beginning of June, weighed down firstly by subdued export demand and further by reduced buyer competition resulting from closures of some Victorian abattoirs due to COVID-19 outbreaks.
Tightened restrictions on individuals and business across Victoria in response to COVID-19 will see worker numbers at meat processing facilities across the state constrained by one third. For the calendar year-to-date Victoria has accounted for 47 per cent of national sheep and lamb slaughter. The impact of the restrictions on processing capacity will be largely mitigated by reduced throughput due to a smaller flock and favourable seasonal conditions which have increased the emphasis on restocking, however there could be a lasting impact on market sentiment in the lead up to spring. Since the start of the June, the eastern states trade lamb indictor has declined by 20.2 per cent and the national mutton indicator by 15.4 per cent, both indicators currently lower year-on-year.
Consumer demand for sheepmeat will remain subdued while restrictions remain on foodservice outlets and economic conditions weigh on consumer expenditure, however there are some signs of improvement. With approximately 40 per cent of Australia lamb production consumed domestically, demand is expected to improve as restrictions ease in most states. Domestic demand will remain tightly linked to foodservice recovery and the risks of restrictions being re-imposed as has add uncertainty to the outlook.
Likewise, export demand will also hinge on recovery in foodservice demand in key export markets. China is the standout market with lamb exports increasing by 10.4 per cent month-on-month in June. Export demand from the Middle East is expected to remain weak due to reduced travel and low oil prices, while rising cases of COVID-19 in the United States is expected to weaken demand for lamb as many states return to restrictions on foodservice. Weakness in both these markets will continue to weigh on lamb prices as they have accounted for 43 per cent of year to date lamb exports.
Lamb prices are expected to come under further pressure as supply trends towards seasonal highs as the spring flush of new season lambs have begun appearing in markets. On average, eastern states weekly lamb slaughter increases by 30 per cent from a seasonal low at the end of July to a peak in December. The rise in lamb slaughter could be greater this year, and could exceed weekly rates from 2019, due to an expected increase in lambing rates resulting from improved seasonal conditions in eastern states.
Source: Meat & Livestock Australia
*ESTLI and mutton data between 26/3/20 and 2/6/20 is unavailable due to MLA suspending reporting on most price indicators during this period.