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Insights October 2021

11 October 2021 |Sheep & lambs
Sheep

Insights October 2021

11 October 2021 |Sheep & lambs
The October update provides an analysis of production and pricing trends for Australian sheep producers.

Commodity Overview

  • The spring flush of lambs has yet to hit the market in earnest which has helped keep Australian lamb prices at a very high level.
  • Supply is expected to increase through to the end of the year which will place downward pressure on prices.
  • Processing capacity will be challenged by workforce restrictions and COVID-19 outbreaks.

Australian lamb prices remained stable at a very high level in the past month. The Eastern States Trade Lamb Indicator (ESTLI) has bounced between 920-960c/kg since late-August. At the start of October the ESTLI was up 17 per cent year-on-year and 28 per cent above the five-year average.

Lamb supply declined in September which helped sustain high prices. Average weekly slaughter and yardings both declined 8.9 per cent in September. Reduced supply contributed to lamb export volumes declining in the last three months. Lamb exports in September dipped just below the same time last year. This followed a consistent trend above 2020 levels since May. China was an exception to the trend of lower export volumes in September as it recorded a 5.4 per cent increase from August. Chinese demand appears firm with exports in September up 25 per cent year-on-year. But it is the US which has been the strongest driver of demand for Australian lamb. Despite a 21 per cent fall in export volumes from August to September, year to date exports are up 24 per cent from 2020. In addition, import prices have been exceptionally strong. Resurgent consumer demand in the US and a decline in domestic production has driven stronger demand for imports. Strong US demand should continue to the end of the year and offer support for high lamb prices.

Lamb supply is expected to rise through to the end of the year. On average, eastern states weekly slaughter increases 18 per cent from the start of October to late December. Weekly slaughter dipped below average in September and is likely to trend above average as an increased supply of lambs hits the market. This could see a greater than average increase in supply between October to December. This lift in supply will likely place downward pressure on prices through to the end of the year. In addition, processing capacity will be affected by workforce restrictions and COVID-19 outbreaks. This is of particular concern in Victoria which processes approximately 50 per cent of eastern states lambs. Processing capacity in Victoria is currently affected by Melbourne abattoirs limited to 80 per cent of workforce capacity. Processing challenges could also arise from infections among workers prompting closures. While New South Wales will pick up some of the slack, this will become more challenging as supply rises. As a result, prices could experience further downward pressure if processor demand weakens.

Mutton markets experienced a substantial lift in supply in the last month which caused prices to decline. Eastern states sheep slaughter rose to an annual high of almost 110,000 in the week ending 1st of October. This lift brought slaughter up to the five-year average, having trended well below average for most of 2021. In response, the National Mutton Indicator (NMI) was 7.6 per cent lower month-on-month in early October. Despite declining in the past two months, the NMI is 18 per cent above the five-year average with support coming from strong Chinese and US demand.

A graph showing the lamb and mutton price indicators from January 2018 to October 2021. The graph shows that the Eastern States Trade Lamb prices remain stable.  A graph showing the eastern states weekly slaughter rate trends for lamb and sheep from January 2018 to October 2021. The graph indicates that the weekly slaughter rate dipped below average in September and is likely to trend above average as an increased supply of lambs hits the market

Source: Meat and Livestock Australia

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