Lamb exports to China have performed well through 2020, lifting 1% for the year-to-July, to remain the largest export destination.
After a period of fluctuation, sheep and lamb prices have tumbled.
However, unlike the sheep market, cattle prices are unmoved and continue to be reported at or close to record levels. Why the divergence in prices across species?
A holistic assessment points to the impact of COVID-19 on foodservice demand for Australian sheepmeat as the main drag on domestic lamb prices, at a time when prices would ordinarily be reaching their seasonal peak.
As to the impact of COVID-19 on foodservice demand for Australian beef, widespread restrictions and lockdowns have also been detrimental to overseas demand. However, the winter supply contraction, market diversification of product supporting stable retail demand, heightened demand for quick food service options and a favourable rainfall outlook have so far provided support to domestic cattle prices.
The three largest export regions for Australian sheepmeat in 2019 were the United States (US), China and the Middle East (MENA), accounting for 69% of total exports.
A comparison with Australian beef exports shows that shipments to the US, China and Japan, accounted for the same percentage of total exports last year.
However, Australia’s position within the global trading environment and differing exposure to retail and foodservice channels has contributed to the divergence in prices, as a myriad of COVID-19 impacts across the supply chain have had an overburdening effect on domestic sheep and lamb prices.
Australia produces a small portion of the world’s sheepmeat supply but accounts for approximately 38% of exports and is the largest supplier to the global market. Conversely, Australia accounts for around 16% of the world’s beef trade.
A full-scale return to pre-COVID-19 foodservice demand is unlikely in the short-term for high-end foodservice outlets.
These outlets are usually a key channel for Australian sheepmeat due to its status as the leading supplier of prime lamb into global markets. Subsequently, the flow of Australian sheepmeat into key markets has fluctuated slightly relative to previous years.
Lamb exports to China have performed well through 2020, lifting 1% for the year-to-July, to remain the largest export destination. Relative to total Australian lamb exports, China’s market share for the year-to-date has expanded out to 27%, up from 24% in 2019.
The US has taken a hit and its reliance on the foodservice sector has underpinned a 3% decline in lamb shipments, albeit mutton exports have performed well. US cold stores report that lamb inventories in freezers are up 16% compared to year-ago levels, as end-users struggle to find suitable buyers.
Weakened demand from the Middle East has been multifaceted, as the crude oil-dependent countries battle with sharp economic pressures on the back of subdued oil prices, a downturn in the aviation industry and subsequent declines in tourism to the region.
In contrast to the expansion seen in the China market, MENA’s total market share of Australian lamb exports has fallen 5% on 2019 to now sit at 20%.
Unsurprisingly, with Australia’s reliance of global markets, export prices have come under pressure, in turn pulling domestic offerings lower.
The Middle East is regarded as a high-value market for Australian sheepmeat, with an established carcase trade to the region underpinned by substantial growth in air-freight in the last 10 years.
https://www.mla.com.au/prices-markets/market-news/2020/diverging-cattle-and-sheep-markets/
