Insights June 2020
Insights June 2020
- Prices for Australian lambs and sheep are expected to increase during winter, albeit at a more modest rate than previous seasons due to weaker consumer demand resulting from the impacts of COVID-19.
- Tightening supply through winter will support prices close to record highs in winter with eastern states lamb slaughter expected to remain lower than 2019 and decline by 15 per cent from current levels by the end of July.
- Demand in the United States and Middle East is unlikely to improve in the short-term, but there are positive signs of demand recovering in Australia and China.
Australian lamb and sheep prices are expected to continue receiving upwards pressure as supply continues the typical winter contraction. The decline in lamb slaughter rates began earlier and has been sharper than the average seasonal pattern, culminating in a 23.9 per cent decline average weekly slaughter in May compared to last year as producers have sought to retain more stock in response to wet conditions. Weekly lamb slaughter in eastern states is expected to remain lower than 2019 and decline by a further 15 per cent towards a seasonal low at the end of July. Strong restocker demand, fuelled by good pasture conditions following a wet autumn, will continue to produce strong competition for reduced yardings and offer support to prices at saleyards.
Although local factors remain in support of higher prices, headwinds from weaker consumer demand are expected to limit upwards movement in lamb and sheep prices. There are some positive signs for consumer demand in Australia and China as COVID-19 restrictions ease. China is further advanced in recovering from COVID-19 and will be the most positive export market for lamb with export volumes already recovering quickly in March and April to be higher than last year. The downwards pressure on prices is largely coming from a sharp slowdown in foodservice demand in the United States and Middle East, markets which account for over a third of Australian sheepmeat exports. Retail demand has improved but will not be enough to offset the decline in foodservice where more than half of Australian sheepmeat exports are consumed. In addition to weaker foodservice demand in the Middle East, increased air freight costs are raising the price of sheepmeat and low oil prices are expected to lead to lower consumer spending. Recovering demand in these markets will be important to support higher lamb and sheep prices in Australia, but any significant improvements appear unlikely in the short-term and sheepmeat could be substituted by cheaper alternatives in the event that an economic downturn further reduces consumer spending.
The weakness in consumer demand for sheepmeat, both domestically and in export markets, is expected to continue to weigh on the willingness of processors to pay higher prices for lambs and sheep. This is expected to offset most of the upwards pressure being applied to markets by tightening supply and firm restocker demand, resulting in limited price growth during winter.
Source: Meat & Livestock Australia