Insights September 2020
Insights September 2020
- Demand uncertainty is expected to continue to provide headwinds for lamb and mutton prices with the critical factors needed to see an improvement in prices being a return to normal processing capacity in Victoria and COVID-19 restrictions on foodservice outlets being eased.
- The increased supply of new season lambs will also add pressure to prices with a 30 per cent increase in weekly slaughter forecast between the end of August and late December.
- The favourable spring rainfall outlook is providing optimism for producers to restock and add weight to lambs.
The Australian sheep industry is approaching a critical time of year when the spring flush of new lambs start coming to markets and supply rises. Early signs of the spring flush were seen in August when average weekly eastern states lamb slaughter was 7.7 per cent higher than June and 8.7 per cent higher than August 2019, signalling what is expected to be a slightly stronger season for lambs thanks to lamb survival and marking rates. Weekly lamb slaughter is expected to rise by 30 per cent from the last week of August to late December. Sheep slaughter however is expected to trend higher from very low levels in winter but remain lower year-on-year as seen in August when average weekly slaughter was 35 per cent lower than August 2019.
The downward trend in lamb and mutton prices continued in August as the eastern states trade lamb indicator (ESTLI) fell 32 per cent from the start of June. The national mutton indicator fared slightly better with a decline of 23 per cent. The market, which was already under pressure from subdued consumer demand due to COVID-19 restrictions on foodservice outlets was further impacted by reduced demand at saleyards due to a decline in buying power from Victorian processors operating with restrictions on meat processing capacity. The ESTLI recovered 7 per cent in the final week of August as a very favourable rainfall outlook for spring appeared to add some confidence to producers looking to restock.
There is still significant uncertainty in the outlook for demand due to reduced processor capacity in Victoria and the impact of COVID-19 restrictions. With lamb supply increasing significantly in the next few months and Victoria accounting for almost 50 per cent of Australian lamb slaughter, a return to full capacity in Victorian meat processing will be important when the initial six-week period of restrictions ends on the 18th of September. Demand from consumers will remain dependent upon restrictions on foodservices being eased in Australia and in export markets as an estimated 60 per cent of Australian sheepmeat is consumed through foodservice channels, and typically higher-end foodservice which has been the most affected by COVID-19 restrictions. There was some positivity in export markets in August with lamb export volumes to the Middle East up by 19 per cent month-on-month after being a significant market showing subdued demand since the beginning of the pandemic.
Source: Meat and Livestock Australia
*Price data between 26/3/20 and 2/6/20 is unavailable due to MLA suspending reporting on most price indicators during this period.