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Agricultural Commodities: Lamb

15 December 2011

Abare

The Australian weighted saleyard price for lambs is forecast to average marginally lower in 2011–12 at 540 cents a kilogram, a decline of one per cent compared with 2010–11.

Strong export demand is expected to provide continued support for prices in the remainder of 2011–12 despite forecast higher lamb production. In the short term, lamb prices are expected to remain favourable.

The weighted average saleyard price for sheep is forecast to rise by three per cent to 425 cents a kilogram in 2011–12, as producers are expected to continue rebuilding flock numbers in response to favourable seasonal conditions.

In addition, competition between processors and exporters for adult sheep will support sheep prices, with demand from key markets, including the Middle East and developing countries in Asia, expected to remain firm for the remainder of 2011–12.

Australian sheep numbers to increase

The Australian sheep flock is forecast to increase by 5.4 per cent in 2011–12 to around 78 million head. Improved seasonal conditions in key sheep producing states have encouraged producers to rebuild flocks. The forecast sheep flock at the end of 2011–12 takes into account the preliminary estimate of the flock numbers at the end of 2010–11 released by the ABS on 2 December 2011. The ABS estimated sheep numbers to have risen by nine per cent to 74.3 million as at 30 June 2011.

Restocking activity to reduce availability of mutton

Adult sheep slaughter is forecast to fall by six per cent in 2011–12 to five million head. Mutton production is forecast to be 115 100 tonnes, seven per cent lower than production in 2010–11.

Sheep saleyard throughput in the September quarter 2011 declined to its lowest September level in the past decade. Compared with the same quarter a year earlier, sheep slaughter in the September quarter 2011 declined year-on-year by 22 per cent.

Continued higher lamb production

As a result of a greater number of lambs marked at the beginning of 2011–12, lamb slaughter is forecast to increase in 2011–12 to around 19.8 million head. With increasing ewe numbers in the flock, and assuming favourable seasonal conditions in key lamb producing regions, lamb births are forecast to increase. This will lead to higher lamb turn-off in response to favourable saleyard prices. Lamb production is forecast to increase in 2011–12 by nine per cent to 427 100 tonnes.

Value of sheep meat exports to rise

The volume of Australian lamb exports is forecast to increase by 13 per cent in 2011–12 to 177 000 tonnes shipped weight. Export earnings from lamb are forecast to rise by 12 per cent to $1.1 billion in 2011–12. Higher export shipments are expected to more than offset the effect of an assumed strong Australian dollar.

The total value of mutton exports is forecast to fall by three per cent to $391 million in 2011–12. While export prices are forecast to rise in response to increased demand in the Middle East and China, the effect on the value is expected to be more than offset by the six per cent decline in shipments.

Lamb exports to the United States to recover

The United States is one of Australia’s key lamb export markets. The United States Department of Agriculture forecast domestic sheep meat production to decline by three per cent in 2011–12 to 69 400 tonnes ref lecting a long-term decline in the US sheep flock. Relatively high feed costs and poor seasonal conditions in producing regions are also expected to contribute to this forecast decline in 2011–12.

With US sheep meat consumption forecast to remain steady, this will require increased sheep meat imports. As a result, Australian lamb shipments to the United States in 2011–12 are forecast to increase by six per cent to 35 000 tonnes. However, the assumed strong Australian dollar, especially against the US dollar, presents a downside risk to this forecast.

Lamb exports to developing countries to rise

The Middle East is one of Australia’s key mutton export markets. It is also becoming a significant destination for Australian lamb, overtaking the United States as the largest lamb export market in 2010–11. Tight global supplies of mutton have encouraged some substitution toward lamb in the region, with Australian lamb exports to the Middle East totalling 11 500 tonnes in the first quarter of 2011–12, a 12 per cent increase year-on-year.

Australian lamb exports to Asia, most notably China and South-East Asia, have grown significantly over the past decade and are expected to continue increasing in 2011–12. The rise in lamb exports is attributable to rising incomes and changing consumer food choices in many Asian countries. In the September quarter 2011, Australian shipments of lamb to China and South-East Asia totalled around 9700 tonnes shipped weight, a 19 per cent increase year-on-year.

New Zealand lamb exports to recover

In the September quarter 2011, lamb exports from New Zealand were 34 per cent higher year-on-year, at 51 000 tonnes shipped weight. This rise in exports ref lects a recovery in production following adverse seasonal conditions in 2010. Despite increased competition from New Zealand, Australian lamb exports to key markets remained firm.

The United States has been a major market where strong competition occurred between Australia and New Zealand. In the September quarter 2011, Australia supplied around 72 per cent of total US lamb imports, compared with 69 per cent in the September quarter 2010. Because both the Australian and New Zealand currencies have appreciated against the US dollar, the short-term outlook for Australian lamb in the US market is likely to be inf luenced more by the effect of higher landed lamb prices and competition from US domestic production, and less by competition from New Zealand.

Live sheep exports to fall

Live sheep exports are forecast to fall by four per cent in 2011–12 to 2.8 million head. This forecast decline follows a five per cent fall in 2010–11, and reflects continued tight sheep supplies and increased competition for suitable sheep (particularly wethers) from restockers. The total value of Australian live sheep exports is forecast to be around $354 million in 2011–12.

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