Sheep numbers and sheepmeat production is expected to increase even further

Sheep producers are in a strong position due to a larger flock and strong demand from the US and other export markets

Sheep producers remain well positioned to increase production and capitalise on strong global demand

Sheepmeat production is forecast to rise in the second half of the year according to the Rural Bank’s Australian agriculture mid-year outlook report.

The report goes on to say that supply so far in 2022 has been lower than expected with average weekly lamb slaughter only 2% higher year-on-year and sheep slaughter up 3%.

However, the ongoing expansion of the national sheep flock and favourable conditions in many areas in 2022 is forecast to drive a 10 to 15% year-on-year increase in lamb and sheep slaughter throughout the second half of 2022.

Increased supply will pose a risk to the processing sector as labour shortages are set to continue challenging processing capacity for the time being.

Australian exports should be met by weaker competition from New Zealand where lamb slaughter for the year-to-date is down 13% compared to 2021 while sheep slaughter is 11%. This is unlikely to improve due to a steadily declining flock.

Demand at record levels

Strong demand from export markets should absorb the increased local production. Australian lamb exports are already on pace for a record year with export value tipping over $1 billion in the year-to-April, up 38% from 2021.

This rise in value has been fuelled by a 9% rise in export volume and an impressive 27% rise in average export unit price.

Stronger demand has primarily come from the US which has seen a yearon-year rise in export value of 56% in 2022. Increased appetite for lamb from US consumers coupled with a 10% decline in domestic production has opened the door for more imports.

Left: Monthly average ESTLI values forecast at 68% confidence interval. Right: Monthly average NMI values forecast at 68% confidence interval.Source: MLA, Rural Bank

Lamb exports have also seen incredibly strong growth to a diverse group of smaller markets in 2022. The combined value of exports to the UAE, South Korea, Canada, Japan, Malaysia, the UK and Saudi Arabia have increased by $128 million (+61.3%) for the year-to-date.

Meanwhile, China has been the only major market not showing growth in 2022 with year-to-date exports stagnating at 0.2% below 2021 levels. This is likely due to the impacts of COVID-19 restrictions on foodservice in major cities and logistical issues. Exports to China should improve in the second half of 2022 on the assumption that restrictions are eased.

Australian mutton export value for the year-to-date is up 23% from 2021. This is despite a 15% decline in exports to China as smaller markets such as Malaysia, Saudi Arabia, the UAE and UK have shown significant growth.

Price expected at just above average

The typical rise in lamb prices during winter is expected in 2022 but may not be as pronounced as usual given a flatter supply trend through winter.This should be followed by the average seasonal decline of around 10% from a peak in late winter to a low in December.

A forecast rise in lamb supply from last year will see prices lower year-on-year but strong export demand should sustain them approximately 5% above five-year average levels. This would result in the Eastern Trade Lamb Indicator ranging between 760−850c/kg, along the lower range of the price forecast chart. Mutton prices are expected to follow a similar trend, declining through the second half of the year as supply rises with prices to sit between 2021 and five-year average levels.