Insights June 2023

Commodity overview

• Some welcome stability could begin to enter lamb markets in the coming month as supply is not expected to increase much further. Supply will still be high which will delay any winter price rally for the time being.
• The outlook for export demand is neutral as strength from China, the UAE and South Korea is matched by US weakness.

Australian lamb prices could find some stability in the coming month after collapsing in the past fortnight. The National Trade Lamb Indicator (NTLI) fell to 555c/kg in early June, its lowest point since January 2017. The indicator swiftly bounced back above 600c/kg but was still 10 per cent lower than a month earlier and 28 per cent down on a year ago.

Weakness in prices in the past month has been primarily driven by a surge of supply. Lamb slaughter averaged just over 426,000 head per week in May, the highest for a month since March 2019. This was a lift of 18.7 per cent from April which helped drive the accelerated decline in prices. In addition, competition at saleyards was weaker. Seasonal outlooks are providing little confidence for producer demand while processors booked out in advance have been less active.

It is unlikely that a winter price rally will be seen in the next month as lamb supply is set to remain elevated. The late finish and carryover of lambs from last year means supply will extend deeper into winter than usual. While the winter slowdown in supply may be later than usual, weekly supply is not expected to increase much beyond current levels. Some stability in supply could provide the much-needed force to slow the downward price trend.     

Consumer demand in both domestic and export markets is another element adding to market weakness. Australian consumers will remain challenged by persistent inflation and further interest rate hikes. This could translate into fewer purchases of lamb in both retail and foodservice channels. Mixed outlooks in export markets are leading to a balanced export demand outlook overall. Weak US demand continued in May with exports down 26.4. per cent year-on-year. In contrast, exports to China were 67 per cent higher than a year earlier. These diverging trends led to China regaining its place as Australia’s largest lamb export market by volume. In addition to a positive Chinese market, the UAE continued its resurgence and South Korea dipped lower year-on-year but has still taken good volumes. Overall, these gains offset the decline to the US to see exports volumes improve in May and sit 6.8 per cent higher year-on-year. This is largely reflective of increased production which has been absorbed by export markets, albeit at lower prices.

Mutton prices have been on their own trend in the past month. Having recovered to 449c/kg in early-May, the National Mutton Indicator then fluctuated between 338-405c/kg. Sheep slaughter has displayed a much flatter supply trend than usual with weekly rates holding relatively steady since the start of the year. While demand will likely remain weak, supply could slowdown as winter progresses and offer some support to prices.

Source: Meat & Livestock Australia