Insights March 2023

Commodity overview

• Lamb and mutton prices are set to remain subdued through autumn as high supplies continue to be met by reduced competition among buyers.
• A dry start to 2023 and a dry outlook will also play into producer intentions in autumn and likely lead to sustained high supply.

Improved buyer demand is needed to arrest the recent fall in Australian lamb prices. The National Trade Lamb Indicator (NTLI) has fallen 8.3 per cent since the end of January. This has seen the NTLI fall further below average, now 9.4 per cent below the five-year average. Given that the last few years have been characterised by extraordinarily high prices a longer-term perspective gives better context to current prices. Compared to the 10-year average, the current NTLI is still 6.5 per cent higher. The recent slide in lamb prices is stemming from reduced competition at saleyards as buyers have been less active. Heavy lambs have performed slightly better. Despite a 5.8 per cent drop over the past month, the national heavy lamb indicator is in-line with the same time in the past two years and only 1.6 per cent below the five-year average.  

Relatively high supply will continue to weigh on lamb prices. Weekly lamb slaughter has ranged between 360,000 and 380,000 head per week in recent weeks. This is around five per cent above the 10-year average a slight slowdown on the regular weeks above 400,000 head seen since October. Buyers will be confident of securing supply through autumn as slaughter is set to remain elevated. Sustained high supply will be driven by the large numbers of 2022 lambs still to come through markets. In addition, the dry start to 2023 and strengthening dry signals in longer-term outlooks could see more lambs turned off earlier in autumn.  

A slowdown in export demand has also contributed to weaker lamb prices. There has been a noticeable decline in export volumes since October. Average monthly export volumes between November 2022 and February 2023 were 15 per cent lower than the preceding six months from May to October. This decline has been led by the US to whom exports have fallen by 27 per cent between those periods of time. Weaker US demand is likely the result of economic pressures on US consumers leading to reduced dining out and trading down to cheaper meat products. Encouragingly, export volumes to China were 21 per cent higher year-on-year across January and February. This is a good improvement from the 17 per cent decline seen across 2022.

Mutton prices are also expected to remain suppressed under high supply and weaker demand. Mutton prices have been volatile in the past month. The National Mutton Indicator (NMI) fell from 379c/kg in early February to 309c/kg a fortnight later. The NMI then regained some ground, returning to around 350c/kg. At this level, the NMI is 39 per cent lower year-on-year. The weakness in prices has been driven by continued increases in supply over the past month. Weekly sheep slaughter exceeded 180,000 head in late February. This was 52 per cent higher than a year earlier and 51 per cent above the 10-year average. Average weekly slaughter across 2022 was just over 100,000 head. Having successfully rebuilt flocks in recent years, producers are now turning off older ewes in greater numbers while also looking to purchase fewer sheep for restocking. Pressure on prices could continue through autumn as drier conditions will likely see further culling of older stock.

Source: Meat & Livestock Australia