AUSTRALIA – A short term production slump will drive up prices for Australia’s sheep sector as the industry commences a national flock rebuilding programme.
Strong demand and two years of widespread drought has led to high-turn off rates of breeding ewes which is now going to be addressed, predicts the Department of Agriculture Fisheries and Food (DAFF).
Contraction will be corrected by 2019-20, providing production conditions and demand dynamics allow, state government and levy board analysts.
In the meanwhile, however, prices will be strong across lamb, mutton, sheep and wool segments.
Total sheep numbers are expected to bottom out at just under 71 million this June. Demand is expected to stay in the market, leaving wool and lamb and sheep prices all higher, predicts a government report.
The Department of Agriculture has put a question mark against the pace of flock rebuilding, saying it will be “tempered” by strong sheepmeat export demand.
“Graziers will be facing the challenge of choosing between flock rebuilding and turn-off for favourable prices,” said the ABARES report. “Seasonal conditions will also be an important factor affecting flock rebuilding activity.”
Mutton production will be sharply lower this year, contracting 29 per cent, says Meat and Livestock Australia (MLA). Sheep are going to be lighter until 2018, when weights are expected to stabilise at 23.6 kilos per head.
MLA analysts forecast a 27 per cent drop in slaughter this year and a further million fewer for 2016. By 2019, slaughter will have recovered, in part, to around 8.5 million, but MLA analysts say this will be 14 per cent below 2014 levels.
Chart courtesy of DAFF
In contrast, liveweight sheep exports are forecast to increase to 3 million head, up from 2.3 million last year. MLA says this is still “well below” numbers of a decade ago.
Before any flock recovery, sheep prices will increase. DAFF calculates a 17 per cent increase to take sheep values to 364 cents per kilo this year and next.
They say stocker retaining will help prices too before stability comes by 2019-20 and prices slacken off to average around 323 cents per kilo.
Lamb Price to Rise
A short term increase in lamb prices comes off the back of tight supply. Government predictions have lamb to lift 7 per cent to 510 cents per kilo.
Drought has led to low availability, with prices further spurred by US and Middle East buying.
“Growth in export demand—aided by an assumed lower Australian dollar—is also expected to place upward pressure on saleyard prices,” said government market analyst Peter Berry. “Over the medium term (to 2019–20), prices are projected to decline gradually in real terms because flocks and slaughter are expected to increase.”
The outlook up to 2019 is for a 12 per cent drop in lamb production in 2015 to 431,600 tonnes hundred weight before rebuilding to 506,000 tonnes in 2019, according to the MLA.
Lamb slaughter is forecast to build to 22.8 million head by 2019, returning to, and potentially surpassing, the record breaking levels of 2013 and 2014.
Wool to Reflect Low Sheep Numbers, Poor Pasture
Australia’s wool price index, the Eastern Market Indicator, is expected to run at around 1075 cents per kilo – 3 per cent higher.
Tight supplies are expected to combine with a weaker Australian dollar to push prices on further before running at 1064 cents in five years. In 2020, DAFF expects wool production to reach 345,000 tonnes.
Wool production will slide four per cent and a further two per cent in 2016 to leave 328,000 tonnes, reflecting fewer sheep and lighter fleeces as pasture quality remains an issue in eastern areas.