Mecardo Analysis - A shrinking flock and weaker supply, but is it enough?
- By: "Farm Tender" News
- Ag Tech News
- Oct 02, 2018
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By Angus Brown | Source: ABS, MLA.
Timing is everything in markets. Even in market analysis, when you write an article looking at sheep and lamb slaughter, then Meat and Livestock Australia (MLA) release their projections in the same week, you must go back and re-do the numbers. There weren’t too many surprises in MLA’s forecasts for this year, but those for coming years did raise our eyebrows.
Forecasting anything is an inherently tricky business. Just ask weather forecasters. In livestock markets, MLA does have the best array of data to base their forecasts, so when they put out projections we like to take notice.
Regular readers will be aware of the massive swings we have seen in lamb slaughter this year so far. Figure 1 shows the record monthly slaughter in May being followed just three months later by what could be a six-year low. There is also the complicating factor of expected large reductions in lamb marking rates in NSW, which will no doubt impact supply.
It’s interesting that having factored all this in, MLA is forecasting lamb slaughter for 2018 to remain similar to earlier projections and 2019 slaughter to be basically steady. Figure 1 shows our calculations which give an estimate of lamb slaughter for October to December.
Basically, we take MLA’s projection of 22.9 million, deduct the official numbers to July. We then deduct estimated numbers for August and September and apply a seasonal factor for the remaining lambs to be slaughtered in October to December. MLA is expecting slaughter to be very similar to last year.
Looking to the medium term, MLA is forecasting reductions in lamb slaughter rates. Figure 2 shows the changes from the June projections, with 2-3% being wiped off lamb slaughter for 2019-2022. We’re not sure if this will be enough.
MLA is forecasting the flock to take a hit this year. In fact, the 2018 estimate is for June 30, and as such, they are saying the hit has already been worn. All the sheep added in 2017 are expected to have been wiped off, with the flock being 5.6% smaller.
Key points
* MLA’s sheep industry projections are forecasting similar lamb supply this year, but weakening in coming years.
* The sheep flock is expected to fall back to 2016 lows.
* A shrinking sheep flock, and lower lambs slaughter will offer strong support for prices.
What does this mean?
MLA’s forecast sheep flock and lamb slaughter numbers are nothing but positive for sheep and lamb prices. But there might even be room for lower forecasts and more price support.
The record small flock of 67.5 million head did produce 22.95 million head of lambs for slaughter and a strong increase in the flock in 2016. This appears to be what MLA are basing their 2019 forecasts off, with a larger flock producing fewer lambs and a steady flock.
However seasonal conditions in 2016 were close to normal, grain was cheap, and lamb marking rates were at a record. It remains to be seen, but there might be room for a record low flock and much weaker lamb supply. This is especially true if some rain doesn’t turn up soon.
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