Insights May 2023

Commodity overview

• Lamb prices are set to remain subdued in the next few months as high supply is expected to extend into the start of winter.
• Strong growth in demand for lamb from China, South Korea and the UAE is being matched by weaker US demand.
• Mutton prices have posted a strong recovery in recent weeks but will likely stabilise in coming weeks.

Australian lamb prices will take direction from a resumption of normal supply trends in May following a disrupted April. Public holidays meant working days all but one week in April was shortened. This led to the week ending 21^st April seeing the highest weekly lamb slaughter since December 2019. Meanwhile the rest of the month saw weekly slaughter well below previous months. Lamb supply is expected to lift in May with plenty of lambs still to be sold. This should also help sustain weekly supply into winter rather than the typical decline in supply seen during June and July.

As a result of a more extended period of high supply, lamb prices are not expected to see their usual 10 per cent increase from April to July as supply tapers off. This will keep prices languishing below five-year average levels for the time being. The end of April saw the National Trade Lamb Indicator (NTLI) drop below 700c/kg again. This followed a short-lived improvement back to 733c/kg in early April. Currently, the NTLI is 14.9 per cent below its five-year average. Weaker demand has weighed heavier on lighter lamb categories with light lambs 24 per cent below average and restocker lambs down 32 per cent on average. Heavy lambs have held up relatively better and only trail the five-year average by 10 per cent.  

Lamb export volumes have continued to outpace 2022 levels despite supply disruptions causing fewer exports in April. Exports during January to April were five per cent higher than 2022 and the largest volume since 2020. Rebounding demand from China and the UAE has driven this growth while South Korea has further cemented itself as an important market. These improvements have helped offset a 22.6 per cent decline in year-to-date exports to the US where economic conditions is seeing consumers trade down to cheaper proteins. This balance of weaker US demand matching growth in other major markets will likely prevent much upside to lamb prices in coming months.

A lack of upside for lamb prices is also likely to prevent any further improvement in mutton prices following a strong recovery in recent weeks. The National Mutton Indicator (NMI) has rebounded by 49 per cent since mid-March. Having briefly dropped below 300c/kg, the NMI has since recovered to 442c/kg. This saw the NMI’s discount to the NTLI close to 34 per cent, much closer to the five-year average discount of 32 per cent. This is in much greater alignment compared to the gap of 57 per cent in mid-March. Further growth in mutton prices is unlikely until supply declines from current high levels. Despite the supply disruptions, average weekly sheep slaughter in April was still 26.4 per cent above the five-year average. As with lamb, elevated supply has driven an increased volume of mutton exports. Year-to-date export volume is up 44 per cent on 2022. This growth has been supported by a strong rebound in Chinese demand with exports to China up 77 per cent from 2022.

Source: Meat & Livestock Australia