Insights February 2023

Commodity overview

• Elevated supply and a softening of export demand will keep Australian lamb prices around five-year average levels.
• Mutton markets will remain weaker as supply remains elevated and restocker demand is weaker.

Australian lamb prices are set to remain around five-year average levels as markets operate under a higher supply environment. The National Trade Lamb Indicator (NTLI) has softened to start February. After rising 9.1 per cent across January, the NTLI has since fallen 3.9 per cent to 740c/kg. This places the NTLI 10.8 per cent lower year-on-year and 4.8 per cent below the five-year average.

Increased supply is contributing to weaker prices compared to last year. Average weekly lamb slaughter for the year-to-date is 14 per cent ahead of 2022. This is a continuation of the high supply seen in late-2022 as delayed sales due to wet weather have continued to flow through to markets. This is set to remain the case for the next few weeks at least.

Elevated supply is also likely to continue driving significant weakness in mutton prices. The National Mutton Indicator (NMI) has improved to 373c/kg in recent weeks but remains 35.8 per cent behind the same time last year. The NMI briefly dipped below 300c/kg in late-January, a level not seen since March 2016. The larger decline in mutton prices compared to lamb is partially due to a much larger increase in supply. Sheep slaughter for the year-to-date is 58 per cent higher than 2022 as producers have turned-off older ewes in greater numbers. In addition to increased supply, demand has been weaker with fewer restockers seeking ewes to expand breeding flocks. Higher supply and weaker demand are likely to keep mutton prices suppressed going forward.

Export demand also appears to have softened in recent months, adding some further downward pressure to sheep and lamb prices. This is evident in the average export price for Australian lamb falling 17 per cent in the second half of 2022 from a record high in June. Despite this decline, a strong start to 2022 and high export volumes across the year helped drive a record year for export value. Lamb exports reached $3.4 billion in 2022, a rise of 20.2 per cent from the previous record in 2021. This came from a record export volume of just over 300,000 tonnes. Growth was strongest to the US which rose by $221 million (+22.4 per cent) to exceed $1 billion for the first time. South Korea also recorded a strong leap of $124 million (+76.9 per cent). China was the only market in Australia’s top 10 to record a decline in value, falling by 13.7 per cent, but remained Australia’s second largest market. Exports will likely remain challenged by weakness in US demand and a higher Australian dollar compared to late-2022.

Source: Meat & Livestock Australia