Mecardo Analysis - Sheep and lamb supplies looking thin even in spring

By: "Farm Tender" News
Ag Tech News
Jun 04, 2019
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This article is bought to you by Forest Springs Merinos.

By Angus Brown | Source: MLA.

There has been a lot of talk around record lamb and sheep prices in recent times and where prices might go as supply continues to tighten. For a majority of lamb producers, this is interesting, but of little consequence. This week we take a look at where supply might be when the majority of lambs are sold – in the spring and summer.

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Does the old adage, “the higher it goes, the harder it falls” apply to lamb and sheep markets? Well, sort of. The winter of 2019 will mark the fourth year in a row that lamb prices have hit a new record high.

The subsequent falls from the peak have indeed been heavier with each of the last three new highs. However, while the falls have been heavier, the base price level keeps lifting (Figure 1).

Normally in a market, record prices encourage increases in production, which see prices return back towards the cost of production. The drought has lifted the cost of production in many areas and negated flock rebuilding and as such, supply of lambs has dwindled despite higher prices.

This year that trend of lower supplies in the face of higher prices is likely to continue, with many producers wondering where lamb and sheep prices are going to end up in the spring after they have come off record highs.

There is little doubt lamb prices will tank at some stage, with suckers likely to hit the market as soon as they are ready. With stronger supply will come lower prices.

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The best template we have for lamb supply comes from last year. The drought impacts on lamb supply are likely to be similar, with NSW winter and early spring sucker supply weak, and more normal in late spring and summer.

2019-06-04 Sheep 1

Figure 2 shows that last year October to December supply was still weaker than normal, but nothing like the dearth in August and September. Figure 3 illustrates that sheep slaughter ramped up last year to compensate for fewer lambs, with total sheep and lamb slaughter actually not far off the average (Figure 4).

2019-06-04 Sheep 3

Key points

* Current record sheep and lamb prices are great but of little benefit to most sheep producers.

* The outlook for spring and summer sheep and lamb supply looks like it will be relatively tight.

* Spring and summer price lows could be up to 20% higher than those seen last season.

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What does this mean?

Part of the reason lamb prices fell heavily last September was a rapid improvement in sheep supply, along with rising lambs supply. The drought is yet to break, but sheep supply will have to be weaker in the spring and summer, and lamb supply similar. This could put total sheep and lamb slaughter back at levels similar to those seen recently in May. If a flock rebuild gets into full swing, sheep slaughter could be as low as levels seen in 2011 (Figure 3).

For prices this is positive. Given the potential supply outlook, especially in the event of widespread rain and cheaper fodder prices, we could see spring and summer price lows 20% higher than last season. This puts lamb at 780¢ and sheep at 480¢/kg cwt.

www.mecardo.com.au