Liquidation of the NSW sheep flock has begun in the last six to eight weeks from a peak of 28.15 million head in 2022/2023 and is forecast to fall to 24.5 million head in 2023/2024.
A challenging 18 months lies ahead for the lamb markets with a forecast trading range of 440-510c/kg carcase weight for heavy lambs and the first low expected in December at 450c/kg.
There will be no escape for mutton either as prices will hover in the 195-260c/kg carcase weight for the next 18 months as dry conditions take hold.
But looking into the future the news is not all bad with a bounce back for Australian lamb to record levels in 2025-2027, supported by a strong US grainfed market.
Market analyst Simon Quilty, Global AgriTrends, said the lamb and mutton market slump was a perfect storm of a reduced kill capacity, market failures and liquidation of the NSW flock.
Mr Quilty said trade lambs would likely trade at an average discount of 15c/kg to heavy lambs as restockers disappear.
“Few farmers will be incentivised to feed lambs and taken on more risk. By the time we hit 2026-2027 we will have record prices, but the question is who is going to be in the game and who isn’t?” he said.
Mr Quilty, of Wangaratta, was a keynote speaker at the Pasture Agronomy Services seminar at Wagga Wagga on July 27.
Australia’s global lamb and mutton markets are quiet, with weak economies and extensive inventories being held across most markets.
Mr Quilty said a heavy reliance on China for mutton exports was concerning.
“Lamb export markets are diversified but mutton is not with 68 per cent in the 2022/2023 financial year exported to Asia. China consumes 44 per cent and Malaysia 10 per cent, while North America imports 11 per cent and the Middle East 14 per cent,” he said.
“In my mind, that is too much to China. We are beholden to China and Malaysia for more than half of our exports of mutton – it does make us vulnerable.”
In comparison, Australian lamb exports in the same period comprised 42 per cent to Asia, 26 per cent to North America, 15 per cent to the Middle East, and 3 per cent to the UK/European Union.
“That 26 per cent to the US is heavy lamb, in fact almost all our heavy lambs go to America and one of the challenges is the US economy itself with leading indicators pointing to a recession from the current third quarter to the first quarter of 2024,” Mr Qulity said.
“The economy is being dragged down by weakening consumer outlook and increased unemployment claims – the longest streak in decreases since the 2007-2009 recession.
“Frozen Australian foreshanks continued to fall from the start of the year down to 318 USc/lb – they should be rising as we go into their summer months but are doing the opposite.”
The same holds for frozen boneless shoulders down to 390 USc/lb and frozen boneless legs down to 340 USc/lb while frozen Frenched racks held their own at 1340 USc/lb.
The US lamb cut-out value has fallen 30 per cent since late 2021.
“The US has bailed. It’s tough going in these premium markets. In China’s imported mutton and lamb stocks we have seen a 30 per cent fall while their own stocks of mutton and lamb are sitting at a 2.5 year high,” Mr Quilty said.
“I cannot see these stocks clearing themselves for at least six months and it may be another six months before they are fully cleaned up – it is challenging – and on top of that is consumer sentiment.”
Mr Quilty advised lamb producers to keep track of export grain fed beef markets.
“Lamb and grain fed beef are tied at the hip – both are elite products. A lot of those price lifts in lamb will be a result of a lift in global grain fed beef prices over the next five years but there is some pain to be got through yet,” he said.
“Lamb has remained at a premium in the US for 20 years with the exception of 2020 during covid.”
In 2004-2005, the Australian sheep and lamb weekly kill was 553,000 head and the market experienced a 41 per cent fall in 52 weeks. In 2011-12, the industry was processing an average of 475,000 head and experienced a 45 per cent fall over 91 weeks.
Processing jumped to 551,000 head in 2019-2020 and there was a 40 per cent price fall over 78 weeks. Processing fell to 271,000 head in 2021-2022 and there was a 44 per cent price fall over 91 weeks.
“The problems in the small stock sector are even more dramatic than in the beef sector. Processing is almost half of where we were in the drought and yet we have fallen 44 per cent – simply there is not the labour, it is a major problem,” Mr Quilty said.
“The better processing margins in Australia might be short-lived with sheep meat producers now producing lambs below breakeven and there will be a desire for those in the wheat/sheep belt looking to increase their cropping and exit sheep altogether over the next 18 months.”
Post-drought, the NSW sheep flock grew by a whopping 21 per cent in 2020 compared to the national average of 7.1 per cent.
Liquidation of the NSW sheep flock has begun in the last six to eight weeks from a peak of 28.15 million head in 2022/2023 and is forecast to fall to 24.5 million head in 2023/2024.
“That has brought a lot of mutton and lamb forward, and we have limited processing capacity to manage that. In some respects, the sooner the better – let’s get it over and done with because this liquidation is having a huge impact in terms of pricing today.”
Mr Quilty said the phase out of the live sheep export trade would flood the domestic market with extra animals.
“The bigger concern in terms of meat processors, there will be farmers exiting the livestock industry to take up alternative land uses in WA.”