Australian Lamb and Sheep Meat Annual Review

Australian Lamb and Sheep Meat Annual Review

Australian Lamb and Sheep Meat Annual Review

Australian Lamb and Sheep Meat Annual Review 2018

Australian Lamb and Sheep Meat Annual Review

2 2 This report is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Rural Bank Limited, ABN 74 083 938 416 AFSL / Australian Credit Licence 238042 makes no representation as to or accepts any responsibility for the accuracy or completeness of information contained in this report. Any opinions, estimates and projections in this report do not necessarily reflect the opinions of Rural Bank and are subject to change without notice.

Rural Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth therein, changes or subsequently becomes inaccurate. This report is provided for informational purposes only. The information contained in this report does not take into account your personal circumstances and should not be relied upon without consulting your legal, financial, tax or other appropriate professional.

© Copyright Rural Bank Ltd ABN 74 083 938 416 and Bendigo and Adelaide Bank Ltd ABN 1 1 068 049 178 (RBL19085) (07/18) About the research The Australian Lamb and Sheep Meat Annual Review includes data and outlooks on factors affecting Australian and international sheep markets, such as production, seasonal conditions, prices and demand. Significant effort has been taken to secure the most recent data available. Where appropriate, Middle East and North African nations are referred to as the Middle East and North Africa (MENA). MENA includes: Algeria, Bahrain, Djibouti, Egypt, Gaza Strip, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, West Bank and Yemen.

About Rural Bank Rural Bank has been a wholly-owned subsidiary of Bendigo and Adelaide Bank Limited since 2010. It is the only Australian-owned and operated dedicated agribusiness bank, providing exceptional financial services, knowledge and leadership for Australian farmers to grow. About Ag Answers Ag Answers is a specialist insights division of Rural Bank. Recognising that good information is the key to making good business decisions, Rural Bank provides research and analysis into commodities, farmland values, farm business performance and topical agricultural issues to enable farmers to make informed decisions.

Australian Lamb and Sheep Meat Annual Review

3 The Australian sheep industry continued its strong run in 2017 with a fifth consecutive year of growth in the average annual trade lamb price, and fourth consecutive year of growth in the mutton price. Lamb production in 2017 was 1.3 per cent lower than 2016, the first year of decline after five consecutive years of growth. Growth in both production and prices for a sustained period is a remarkable combination, and highlights the growing strength of demand over that time. Given that domestic consumption of sheep meat has remained steady, the growth in demand is almost exclusively from export markets, namely the US, China and Middle East.

The value of exports from the Australian sheep industry was $3.7 billion, equivalent to 7.4 per cent of Australia’s total agri-food exports. Sheep industry exports grew by $622 million in 2017, accounting for 10.5 per cent of the almost $6 billion growth of agri-food exports; a significant contribution to the sector’s growth. Positive sentiment has continued for sheep producers into 2018, but has been tempered slightly by poor seasonal conditions which have forced some producers to buy in more feed or consider turning-off stock when they would otherwise seek to increase flocks to take advantage of historically high prices.

This has seen slaughter rates trend higher, putting downwards pressure on sheep and lamb prices earlier in the year. However the strength of demand is such that prices only declined marginally under the weight of the extra supply. Tightening supplies in June have seen prices trend higher, with lamb entering record territory above 700c/kg.

The outlook for the industry remains very positive with global demand set to continue to outpace supply, meaning increased opportunities for Australian sheep meat exports and sustained support for prices. The low Australian flock is a limiting factor to supply, and producers will be looking for improved seasonal conditions to allow for flock expansion. This report provides analysis of historical trends of seasonal conditions, prices, production and demand, both domestically and from a global perspective. It also investigates the outlook for the Australian sheep industry and the likelihood of the current strength of the industry continuing.

Summary

Australian Lamb and Sheep Meat Annual Review

4 Seasonal conditions Australian sheep producers have experienced mostly dry conditions in 2018. A good, albeit late, spring in 2017 provided most regions with a good feed base to get through summer. However, the early months of 2018 have been drier than average and have seen pasture conditions deteriorate in most sheep producing regions, except for western Victoria and Western Australia which are experiencing favourable lambing conditions. Autumn largely failed to provide much improvement in conditions, resulting in poor pasture conditions going into winter.

The extended period of dry conditions is reflected in soil moisture estimates. Most major sheep producing regions had below average root zone soil moisture during May. Soil moisture was average to above average in south eastern South Australia, south west Victoria and Tasmania. The effects of below average soil moisture are shown in the normalised difference vegetation index (NDVI) where vegetation in May was lower than the long term average for the month in many sheep producing areas. The exception to this was in southern New South Wales, the Mallee and Wimmera in Victoria and parts of South Australia where some areas were ‘greener’ than average.

Drier than average conditions are expected to continue through winter. The major sheep producing regions of New South Wales, northern Victoria and South Australia are unfortunately among the areas with the least likelihood of receiving median rainfall. Conditions are also expected to be warmer than average for most of Australia during winter.

Both the El Niño – Southern Oscillation and the Indian Ocean Dipole are forecast to hold their neutral state during winter and therefore have less influence on Australia’s climate, making local drivers more influential. The rainfall outlook for south eastern Australia is being influenced by below average pressure (warmer water) over the Tasman Sea, which is expected to reduce the rainfall making its way to Australia by weakening the westerlies. Longer range models are beginning to suggest an El Niño may develop in spring, with La Niña the least likely scenario later in the year.

4 Chance of above median rainfall outlook – Jul to Sep Recent rainfall deciles – Mar to May 2018 Relative root zone soil moisture – May 2018 Vegetation index anomaly – May 2018 Source: Bureau of Meteorology, 2018 Source: Bureau of Meteorology, 2018 Source: Bureau of Meteorology, 2018 Source: Bureau of Meteorology, 2018 Seasonal conditions Australian sheep producers have experienced mostly dry conditions in 2018.

A good, albeit late, spring in 2017 provided most regions with a good feed base to get through summer. However, the early months of 2018 have been drier than average and have seen pasture conditions deteriorate in most sheep producing regions, except for western Victoria and Western Australia which are experiencing favourable lambing conditions. Autumn largely failed to provide much improvement in conditions, resulting in poor pasture conditions going into winter.

The extended period of dry conditions is reflected in soil moisture estimates. Most major sheep producing regions had below average root zone soil moisture during May. Soil moisture was average to above average in south eastern South Australia, south west Victoria and Tasmania. The effects of below average soil moisture are shown in the normalised difference vegetation index (NDVI) where vegetation in May was lower than the long term average for the month in many sheep producing areas. The exception to this was in southern New South Wales, the Mallee and Wimmera in Victoria and parts of South Australia where some areas were ‘greener’ than average.

Drier than average conditions are expected to continue through winter. The major sheep producing regions of New South Wales, northern Victoria and South Australia are unfortunately among the areas with the least likelihood of receiving median rainfall. Conditions are also expected to be warmer than average for most of Australia during winter.

Both the El Niño – Southern Oscillation and the Indian Ocean Dipole are forecast to hold their neutral state during winter and therefore have less influence on Australia’s climate, making local drivers more influential. The rainfall outlook for south eastern Australia is being influenced by below average pressure (warmer water) over the Tasman Sea, which is expected to reduce the rainfall making its way to Australia by weakening the westerlies. Longer range models are beginning to suggest an El Niño may develop in spring, with La Niña the least likely scenario later in the year.

Rainfall Decile Ranges Root zone soil moisture Highest on record Very much above average Above average Average Below average Very much below average lowest on record Highest 1% Very much above average Above average Average Below average Very much below average lowest on record 5.0 3.0 2.0 1.5 1.0 0.6 0.2 -0.2 -0.6 -1.0 -1.5 -2.0 -3.0 -5.0 No Data 80 75 70 65 60 55 50 45 40 35 30 25 20 Chance of exceeding median rainfall (%) 10 8-9 4-7 2-3 1

Australian Lamb and Sheep Meat Annual Review

5 Australian production Australian lamb slaughter fell 2.3 per cent in 2017, brought down by tighter supply in the first half of the year when seasonal conditions allowed for greater stock retention for flock expansion. Slaughter in the second half of 2017 was higher than 2016 as conditions began to deteriorate and forced some stock turn-off. The trend of increased slaughter has continued in early 2018 with year to date lamb slaughter trending 8.1 per cent higher than 2017 as dry conditions in NSW and Victoria have prompted increased stock turn off. Mutton production also experienced a year in two parts, with tight supplies in early 2017 and a significant rise in slaughter in the second half of the year leading to an annual increase of 10.9 per cent.

Mutton production has continued to grow in 2018 with year to date production trending 14.8 per cent above 2017 as producers reluctantly continue to turn-off older stock. Sheep and lamb slaughter in 2018 continues to exceed expectations as a result of poor seasonal conditions, and indicates that there will be tighter supplies during winter as most old season lambs will have already been sold and new season lambs are expected slightly later. Winter and spring rainfall will be a major factor in determining lambing percentages and overall production for the year.

The Australian sheep flock recovered 4.2 per cent to 70.2 million in 2017 after a dip in 2016. Producer intentions to continue expanding flocks to take advantage of strong returns for both sheep meat and wool were evident in early 2017, when seasonal conditions allowed for greater retention of stock for breeding and wool production. However, despite price incentives to expand flocks, the dry seasonal conditions later in the year and in early 2018 produced headwinds for flock expansion. The increased slaughter observed in 2018 will delay growth in the flock and subsequently limit production growth.

It is expected that producers will switch into flock expansion activities when seasonal conditions improve.

5 The Australian sheep flock was approximately 70.2 million after a 4.2 per cent increase in 2017 Australian production Australian lamb slaughter fell 2.3 per cent in 2017, brought down by tighter supply in the first half of the year when seasonal conditions allowed for greater stock retention for flock expansion. Slaughter in the second half of 2017 was higher than 2016 as conditions began to deteriorate and forced some stock turn-off. The trend of increased slaughter has continued in early 2018 with year to date lamb slaughter trending 8.1 per cent higher than 2017 as dry conditions in NSW and Victoria have prompted increased stock turn off.

Mutton production also experienced a year in two parts, with tight supplies in early 2017 and a significant rise in slaughter in the second half of the year leading to an annual increase of 10.9 per cent. Mutton production has continued to grow in 2018 with year to date production trending 14.8 per cent above 2017 as producers reluctantly continue to turn-off older stock. Sheep and lamb slaughter in 2018 continues to exceed expectations as a result of poor seasonal conditions, and indicates that there will be tighter supplies during winter as most old season lambs will have already been sold and new season lambs are expected slightly later.

Winter and spring rainfall will be a major factor in determining lambing percentages and overall production for the year.

The Australian sheep flock recovered 4.2 per cent to 70.2 million in 2017 after a dip in 2016. Producer intentions to continue expanding flocks to take advantage of strong returns for both sheep meat and wool were evident in early 2017, when seasonal conditions allowed for greater retention of stock for breeding and wool production. However, despite price incentives to expand flocks, the dry seasonal conditions later in the year and in early 2018 produced headwinds for flock expansion. The increased slaughter observed in 2018 will delay growth in the flock and subsequently limit production growth.

It is expected that producers will switch into flock expansion activities when seasonal conditions improve.

VIC SA TAS NSW WA QLD ‘000 tonnes cwt ‘000 tonnes cwt 25 0 30 10 35 20 40 45 50 55 30 40 50 60 70 80 90 100 Data: MLA 2000 million head million head slaughtered 50 0 60 70 80 90 5 100 10 1 10 15 20 120 130 25 2008 2016 2004 2012 2009 2005 2013 2002 2001 2010 2006 2014 2003 201 1 2017 2007 2015 Data: Meat and Livestock Australia (MLA), Australia Bureau of Statistics (ABS) Sheep flock (LHS) Lamb slaughter (RHS) Sheep slaughter (RHS) Jan-Apr 2016 Jan-Apr 2017 Jan-Apr 2018 Australian lamb production for January to April 2018 was 8 per cent higher than 2017 Australian lamb production for January to April 2018 was higher in Victoria and NSW Jan Sep Nov Dec May Oct Jun Mar Feb Jul Apr Aug Data: MLA 5yr ave 2016 2017 2018

Australian Lamb and Sheep Meat Annual Review

6 International production World sheep meat production is expected to continue its upward trajectory in 2018 and reach 15 million tonnes for the first time. This follows a 1.2 per cent increase in 2017. The growth in world production has been a long-term trend with a 29 per cent increase being recorded since 2000, driven by increases in China and Africa of 70 and 63 per cent, respectively. The expected growth in production in 2018 is largely from China. China has been a major contributor to the long-term growth in world sheep meat production and produced 32 per cent of the world’s sheep meat in 2017.

Chinese production is almost exclusively consumed domestically, but has been unable to keep up with growing domestic demand since the late 2000s, creating an opportunity for sheep meat imports. In 2017, imports accounted for only 4.3 per cent of consumption.

New Zealand lamb slaughter increased by 2.9 per cent in 2017 but is trending 3.8 per cent lower in 2018. The New Zealand sheep industry has been operating on a much smaller scale in the last nine years, with average annual lamb slaughter 20.6 per cent lower than the early 2000s. This is largely due to a shift towards expansion of dairy and beef production. New Zealand and Australia are the dominant exporters of sheep meat, each accounting for approximately 34 per cent of global exports. Declining capacity for growth in sheep meat exports from New Zealand has the potential to create more opportunities for Australian exports to meet growing demand.

This is particularly true in New Zealand’s key markets such as China and Europe, where Australia has lower market share.

US sheep meat production continued its steady decline in 2017, falling a further 3.3 per cent; 12 per cent lower than 2010. USDA forecasts expect this trend to continue in 2018 with a small decline in production of 0.7 per cent. While production has been trending lower, US consumption has been increasing. As a result, the percentage of consumption met by domestic production has declined from 52% in 2010 to 37% in 2017, increasing the dependence on imports to meet demand. 6 International production World sheep meat production is expected to continue its upward trajectory in 2018 and reach 15 million tonnes for the first time.

This follows a 1.2 per cent increase in 2017. The growth in world production has been a long-term trend with a 29 per cent increase being recorded since 2000, driven by increases in China and Africa of 70 and 63 per cent, respectively.

The expected growth in production in 2018 is largely from China. China has been a major contributor to the long-term growth in world sheep meat production and produced 32 per cent of the world’s sheep meat in 2017. Chinese production is almost exclusively consumed domestically, but has been unable to keep up with growing domestic demand since the late 2000s, creating an opportunity for sheep meat imports. In 2017, imports accounted for only 4.3 per cent of consumption. New Zealand lamb slaughter increased by 2.9 per cent in 2017 but is trending 3.8 per cent lower in 2018. The New Zealand sheep industry has been operating on a much smaller scale in the last nine years, with average annual lamb slaughter 20.6 per cent lower than the early 2000s.

This is largely due to a shift towards expansion of dairy and beef production. New Zealand and Australia are the dominant exporters of sheep meat, each accounting for approximately 34 per cent of global exports. Declining capacity for growth in sheep meat exports from New Zealand has the potential to create more opportunities for Australian exports to meet growing demand. This is particularly true in New Zealand’s key markets such as China and Europe, where Australia has lower market share.

US sheep meat production continued its steady decline in 2017, falling a further 3.3 per cent; 12 per cent lower than 2010. USDA forecasts expect this trend to continue in 2018 with a small decline in production of 0.7 per cent. While production has been trending lower, US consumption has been increasing. As a result, the percentage of consumption met by domestic production has declined from 52% in 2010 to 37% in 2017, increasing the dependence on imports to meet demand.

Australian Lamb and Sheep Meat Annual Review Australian Lamb and Sheep Meat Annual Review Australian Lamb and Sheep Meat Annual Review Australian Lamb and Sheep Meat Annual Review
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