Sheep meat: June quarter 2020

Mikayla Bruce

Saleyard prices to remain high as drought-depleted flocks restrict supply of sheep meat. This will result in a –1% change in the lamb saleyard price to 802 cents per kilogram.

Saleyard prices of lamb and sheep to remain steady

The average saleyard price of lamb is forecast to reach 802 cents per kilogram in 2020–21, slightly under the average for 2019–20. Strong competition between processors and restockers in the latter half of 2019–20 contributed to high saleyard prices. A forecast increase in lamb production in 2020–21 is expected to ease this competition slightly. Strong prices have been accompanied by consistent export demand throughout the COVID-19 pandemic. The 2020–21 forecast price remains 23% above the 5-year average of 654 cents per kilogram.

Saleyard sheep prices in 2020–21 are forecast to reach 586 cents per kilogram due to sustained export demand for mutton and limited supply from drought-depleted flocks. The forecast saleyard price for mutton is 34% above the 5-year average of 436 cents per kilogram.

Global demand for sheep meat is expected to remain robust in the short term. African swine fever has limited production of Chinese pork. This has increased import demand for alternative protein sources. Demand is expected to remain strong, but the COVID-19 pandemic has increased uncertainty around the short-term demand for Australia's sheep meat exports.

Processor Lamb Indicator (CV19)—National and export unit value for lamb, January 2019 to June 2021
Export unit value for lamb is forecast higher than average in 2020–21 due to the rising Processor Lamb Indicator (CV19)—National.
ABARES forecast.
Note: The Processor Lamb Indicator (CV19)—National is an average price per head for processor lambs reported by Meat & Livestock Australia. The indicator was developed after COVID-19 restrictions limited data collection capabilities for reporting standard price indicators.
Sources: ABARES; Australian Bureau of Statistics; Meat & Livestock Australia

Delayed national flock rebuilding despite improved production conditions

Substantial rainfall since February has improved pasture availability in most major sheep-producing regions. However, this is not expected to lead immediately to flock rebuilding. Many producers will be looking to increase cash flow after 2 years of drought and some will focus on pasture recovery before fully restocking.

The national sheep flock is forecast to remain at just under 63 million head in 2020–21. For mixed enterprises, favourable conditions are providing an economic incentive to plant crops. This will limit the availability of land for flock rebuilding. Some graziers are expected to buy in lambs or use agistment to generate cash flow. The expected delay in flock rebuilding will limit the supply of Australian sheep meat over the medium term, helping to support high saleyard prices.

Lambs marked and total turn-off, 2000–01 to 2020–21
ABARES forecast.
Sources: ABARES; Australian Bureau of Statistics

Sheep meat production to fall

Sheep meat production is forecast to fall by 2.2% in 2020–21 to 668,000 tonnes carcase weight. The forecast fall in production can be attributed to the depleted national flock.

Sheep production to fall

A fall in mutton production of 17% in 2020–21 to 178,000 tonnes carcase weight will be the main driver of lower sheep meat production. Destocking during 2019–20 left many producers with only their core breeding flocks. Drought-related feeding costs and high prices provided producers with the economic incentive to sell less productive ewes. In 2020–21 the proportion of ewes joined is expected to increase relative to 2019–20 as a result of improved seasonal conditions and higher fertility of the remaining flocks. A return to more favourable conditions is expected to result in heavier carcase weights, partly offsetting the effect of lower ewe turn-off on production.

Lamb production to remain high

Lamb production is expected to continue to be high in 2020–21 at around 490,000 tonnes carcase weight, 4% higher than 2019–20. Producers are expected to maintain high levels of turn-off to capture high lamb prices. Uncertainty in the wool market and increased debt are likely to result in many producers focusing on breeding lambs for meat production rather than investing in replacing breeding stock. This is expected to lead to a higher proportion of ewes joined with meat breeds. This will cause a short-term change in the composition of the sheep flock, with higher turnover of lambs and less promotion of lambs for wool production.

Lamb and mutton production and weighted average saleyard prices, 2009–10 to 2020–21
The weighted average saleyard prices for lamb and sheep have been rising since 2012–13. In 2020–21 higher prices will be supported by lower than average production.
ABARES forecast
Sources: ABARES; Australian Bureau of Statistics

Strong export demand likely to continue despite uncertainty

Global demand for sheep meat

The United States and China are the most important markets for Australian sheep meat. African swine fever continues to limit pork production in China, the largest importer by volume of Australian sheep meat. The protein gap in the Chinese supply chain has driven strong export demand for Australian sheep meat. This has increased China's sheep meat imports by 27% in the first 9 months of 2019–20, compared with the same period last year. Sheep exports to China continued to increase until the first case of COVID-19 was detected in Wuhan. Exports rose by 78% in October and 69% in November 2019, compared with the same period in 2018.

The consistent increase in export demand from China in recent years has also been driven by rising consumer incomes. As a result, a slowing in income growth is expected to slow the growth in export demand. However, since the start of the COVID-19 pandemic, middle-class Chinese consumers have shown a preference for supermarket and online sales—distribution channels that favour Australian meat. Export demand from China is expected to remain strong in 2020–21 despite uncertainty about the effects of COVID-19.

In the first 9 months of 2019–20, the United States accounted for 21% of the total value of Australian lamb exports. The United States imports primarily higher-value lamb, so COVID-19 presents a risk to the outlook. In the United States, lamb is a specialty product that is popular among migrant communities and is largely consumed in the food service industry. The average export unit value for sheep meat to the United States was $11.9 per kilogram in 2019–20 (year to March), compared with $7 per kilogram in China. Disruptions to the US food service industry and lower household incomes are expected to constrain consumer demand in 2020–21. The depreciation of the Australian dollar in the first quarter of 2020 has improved the affordability of Australian exports, providing some buffer against lower demand.

Global supply of sheep meat

Australia's main competitor in the sheep meat export market is New Zealand. Together, Australia and New Zealand account for 71% of world sheep meat exports, but only produce 8% of global production. Drought conditions in Australia and the expansion of the dairy industry in New Zealand have restricted the volume of sheep meat available for export. Constrained global export supplies of sheep meat in 2020–21 are expected to maintain high export prices despite the demand effects associated with COVID-19.

Australian sheep meat production and export value, July 2018 to March 2020
Total export value of sheep meat in 2019–20 peaked in October and November, driven by Chinese import demand. The higher demand was serviced mainly by an increase in mutton production.
Sources: ABARES; Australian Bureau of Statistics

Australian sheep meat exports

The value of sheep meat exports is forecast to fall by 4% in 2020–21, but the value of lamb exports is forecast to rise to $2.8 billion. Lamb export volumes are forecast to increase by 6% to 290,000 tonnes shipped weight, in line with the forecast increase in lamb production. This will be more than offset by a 17% fall in the export value of mutton to $1.2 billion as a result of a 16% fall in mutton export volumes to 149,000 tonnes shipped weight.

Live exports

Live exports are forecast to remain at around 1.1 million head in 2020–21. As of 1 May 2020, Australian live sheep exports will not take place to, or through, the Middle East from 1 June to 14 September. The ban will apply for additional periods for live exports to Qatar and Oman. The announcement of the permanent ban provides certainty to producers and will have only a limited additional impact on Australian live sheep exports because a temporary ban during the northern hemisphere summer has been in place since 2018.

Value of Australian sheep exports, 2010–11 to 2020–21
The value of sheep meat exports will fall in 2020-21. This is because of a fall in mutton exports. Live export value will remain relatively unchanged and lamb exports will slightly increase.
f ABARES forecast.
Sources: ABARES; Australian Bureau of Statistics

Opportunities and challenges

Alternative scenario for flock rebuilding

Flock rebuilding is expected to be delayed beyond 2020–21 as producers seek to increase cash flow to service increased debt accumulated during the drought. However, producers may choose to take advantage of the improvement in seasonal conditions to rebuild their drought-depleted stocks faster than forecast. Rebuilding requires promotion of lambs into the flock and reduced turn-off of ewes. If flock rebuilding commenced in 2020–21, this would further restrict the production of lamb and mutton. Short-term restrictions in the supply of sheep during the rebuilding phase would increase competition between processors and restockers at saleyards and place significant upward pressure on saleyard prices.

High-quality lamb consumption susceptible to COVID-19 demand recovery

Within Australia, restrictions enforced to slow the spread of COVID-19 are beginning to be lifted. Opening of the food service industry is expected to help restore the market for high-quality lamb in Australia and in export markets. However, the risk of further waves of COVID-19 infections could result in the imposition of new restrictions or long-term closures in the food service industry in Australia and major importing countries, including the United States and China. Further shutdowns in the United States present a downside risk for forecast exports of high-quality Australian sheep meat, given the large proportion of sheep meat consumed by the US food service industry.

Australia a reliable source of red meat

The meat processing industry has been a hotspot for COVID-19 outbreaks, including in major red meat exporting countries such as the United States and Brazil. If Australia can maintain meat processing capacity, producers could benefit from supply disruptions in other red meat exporting countries. This may also help build on Australia's reputation as a reliable source of red meat.

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Sheep meat outlook – June 2020 PDF 6 1.4 MB
Agricultural commodities: June quarter 2020 - Commodities - data tables XLS 12 186 KB
Agricultural commodities: June quarter 2020 - Statistics - data tables XLS 32 592 KB

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Last reviewed: 16 June 2020
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