july-update australian sheep industry projections s market information & industry insights 3...

1MLA’s Market information & Industry insights Australian sheep industry projections 2016 – July update

Australian sheep

Industry projections 2016

IntroductionA greater number of intended lamb sales over the coming months has led to the forecast for 2016 lamb slaughter being revised slightlyhigher, to 23 million head – which will become the fourth consecutive year with a record number of lambs processed. Similar averagecarcase weights to last year will result in lamb production in Australia also hitting a record high for the year. A trend identified in thisupdate was more consistent monthly lamb slaughter over the past two and a half years, resulting in a higher probability of moreconsistent market trends going forward.

While record lamb slaughter and production is forecast for 2016, they are only minor adjustments to the April update, with sheepproduction forecasts remaining the same as the April predictions, at 188,000 tonnes cwt, down 8% year-on-year.

July update

KEY POINTS

23 million head lamb slaughter for 2016

Set for record lamb production in 2016

Reduced volitility in monthly lamb slaughter

Market to be assisted by favourable seasons

LambSlaughter

LambProduction

LambExports

MuttonSlaughter

23(millionhead)

511,000(tonnes cwt)

240,000(tonnes swt)

7.8(millionhead)

MLA’s Market Information – Ben Thomas, [email protected] Locke, [email protected]

* Graphic illustrates year-on-year change

KEY 2016 NUMBERS

Source: Australian Bureau of Meteorology

Figure 1 Australian rainfall - 1 April to 30 June 2016

LegendHighest on recordVery much above averageAbove averageAverageBelow averageVery much below averageLowest on record

Weather outlookA late autumn break, which continued through June, broughtwidespread rain to most key lamb producing regions, boostingproducer sentiment and the market alike.

For the April to June period, large parts of central and south eastAustralia received 'above average' rain, while falls acrossVictoria, south east SA and southern WA were mostly 'average'(Bureau of Meteorology – BOM). Over this three-month period,there were only a few small isolated areas with a 'serious' to'severe' rainfall deficiency, which were primarily in non-lambproducing regions.


MLA and AWI wool and sheepmeatsurvey – June resultsThe MLA and Australian Wool Innovation wool and sheepmeat survey results indicate that the Australian breeding ewe flock at 30June 2016, although down slightly from the February survey, was 2% higher than the same period last year, at 41.7 million head.The rise was underpinned by a 4% lift in Merino ewes to be joined to Merino rams (21.7 million head) and an 11% lift in first-crossbreeding ewes (6 million head). All states except for Victoria recorded an increase in breeding ewes on hand in June.

The total number of lambs on hand across the country in June was up 4% year-on-year, at 26 million head. Pure bred Merino lambnumbers (14.8 million head), first-cross (4.7 million head) and 'other' breeds (pure meat, second cross and composite – 4.6 millionhead) increased 3%, 1% and 10% year-on-year, respectively. Shedding lambs on hand (956,000 head) were up 11%, while dual-purpose numbers (988,000 head) declined 4% from year-ago levels.

Overall, there was a 15% decline in the total number of ewesjoined (6.9 million head) in the June survey period, and thenational average marking rate was steady year-on-year, at96%. The national average Merino marking rate for the Junesurvey period was 84% (down from 86% in June 2015), whilefor all other breeds the marking rate averaged 106% (up from102% last year). It should be noted that the number of lambsmarked during the period captured by the June survey isrelatively low compared to the October survey.

Discussions amongst the Lamb Forecasting AdvisoryCommittee suggest that marking rates across many parts ofthe south-east of the country were down during the hot and dryautumn period, due to the lower nutritional content of feed andewes in poorer body condition. The onset of heavy rains in Mayand June, albeit a welcome relief for many producers, didreportedly cause some livestock management issues. Incontrast, WA has had an exceptional autumn season, andreports suggest lamb survival and marking rates have beenvery good, although the cold and wet weather during the firstfew weeks of July will see the larger numbers of lambs comingonto the market pushed back until late August.

Source: MLA & AWI wool and sheepmeat survey

Figure 3 Lamb marking rates

50%

60%

70%

80%

90%

100%

110%

120% Overall Merino ewes joined Other ewes joinedLinear (Overall) Linear (Merino ewes joined) Linear (Other ewes joined)

2012 2013 2014 2015 2016

Source: ABS, MLA estimates

Figure 4 National sheep flock

020406080

100120140160180200

1945

Million head

1950

1955

1960

1965

1970

1975

1980

1985

1980

1985

1985

1990

1995

2000

2005

2010

2015

2020

f

Wool boom Crop expansion, poor wool prices

Source: Australian Bureau of Meteorology

Figure 2 Australian rainfall outlook: 1 July to 30 SeptChance of exceeding the median rainfall

>80% chance75-80% chance70-75% chance65-70% chance60-65% chance55-60% chance<55% chance

Legend

According to BOM, El Niño-Southern Oscillation (ENSO)indicators in the tropical Pacific Ocean are in a neutral state –meaning neither an El Niño nor La Niña weather pattern iscurrently in action. Recent observations and climate modelssuggest, however, that La Niña may develop over the comingmonths.

The outlook for July to September is for a wetter than averageperiod for most of the country, and across much of northernAustralia, the chance of an early onset of rainfall following thedry season is higher than average. If the three month outlookcomes to fruition, it is likely to assist the current strong sheepand lamb markets.

Weather outlook continued...


Sheep and lamb slaughterA higher number of lambs on hand and ‘expected lamb sales’ has led to an upward revision of the 2016 projected lamb slaughter,to 23 million head (from 22 million head forecast in April), but the expectation for 2017 is likely to remain below those levels as aresult of 10% fewer ewes joined in the June survey period.

Focusing on the rolling 12 month average number of lambsslaughtered (figure 5), there has been much more stability in thatdomain since the beginning of 2014, with only a 4% changeover that period. In contrast, before 2014, when broken into twoyear blocks, the rolling 12 month average number of lambsslaughtered swung erratically – falling as much as 13%, andrising as much as 23%.

The reduced volatility in supply is reflected in average pricing inrecent years also becoming less volatile. That is, with pricebeing a factor of two moving parts – supply and demand – andwith supply being more consistent, price volatility has alsoreduced.

Since August 2014, more than 22 million lambs haveconsistently been processed over any given 12 month period.Interestingly, the rolling average slaughter has lifted to more than23 million head since February 2016, which suggests a 23million head lamb slaughter for 2016 is likely, especiallyconsidering the expected lamb sales from the June surveyresults.

Expectations are that lamb slaughter will rise after 2017, with the2020 forecast likely to reach 24 million head.

In contrast, the rolling 12 month total sheep slaughter continues to trend lower, with mutton prices reflective of the progressivelytightening supplies (national saleyard mutton indicator in June averaged 393¢/kg cwt – up 42% from January, and steady with onJune 2015). The Australian sheep slaughter forecast for 2016 remains at 7.8 million head (in line with April predictions), which is9% below 2015.

Interestingly, when sheep and lamb slaughter are added together, since April 2015, the rise in lamb slaughter has not been enoughto offset the fall in sheep slaughter, and the rolling 12 month average total number of sheep and lambs processed has declinedfrom 32.3 million head nationally, to 31.4 million head – which is a supportive indicator for prices.


Figure 5 Lamb slaughter* vs prices

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0Million head

* rolling 12 month average

lamb slaughter (LHS) trade lamb prices (RHS) ¢/kg cwt

0

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600

-2%

and rise)+14%

+11%

+23%

-13%

+4%

-9%

+35%

-25%

+25%

+35%

-8%

-9%

+45%

(with drop


Figure 6 Rolling annual slaughter

0

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40Million head lamb mutton

2001

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35

total

Despite the greater number of lambs already processed this year, and earlier predictions of tighter availability throughout thewinter months, ‘expected lamb sales’ over the July to October period are 12% higher than the corresponding period last year, atat 9.6 million head. Interestingly, despite Queensland being a relatively low sheepmeat producing state, anecdotal evidencesuggests more producers are investing in fencing and there is increased interest in the sheep industry. Furthermore, the surveyresults for the number of lambs on hand versus expected lamb sales in Queensland indicate that some growers may be starting torebuild their flocks.

Fewer ewes joined across the country, and a considerable increase in the number of lambs expected to be sold over the comingmonths, indicates that a contraction in lamb availability is more likely to occur in the first half of 2017, rather than the second halfof this year.

MLA and AWI wool and sheepmeat survey – June results continued...


Lamb and mutton exportsIn line with rising production, Australian lamb exports in 2016 are forecast to be 3% higher than last year, at 240,000 tonnesshipped weight (swt).

For the year-to-date (January to June), Australian lamb exports reached 125,909 tonnes swt – up 7% year-on-year and 27%above the five-year (2011-2015) average for the period (ABS). Higher value chilled volumes (52,180 tonnes swt) were 3% higheryear-on-year, and up 33% on the five-year average, while frozen lamb shipments (73,728 tonnes swt) for the period lifted 9% fromthe same time last year and are up 23% compared to the long-term average.

For the January to June period this year, Australia's largestmarkets – the Middle East, the US and China – accounted for66% of Australian lamb exports, up from 57% for the sameperiod in 2011.

Shipments to the Middle East were down 2% from year-agolevels, at 33,894 tonnes swt for the first half of 2016, althoughthis was still 30% higher than the five-year average. A 20%decline in frozen volumes (5,921 tonnes swt) accounted for theoverall drop in exports, while, encouragingly, higher valuechilled volumes (27,972 tonnes swt) were up 2% year-on-year.For the first half of the year, there was considerable year-on-year growth recorded in shipments (mostly whole lambcarcases) to the UAE (up 17%, to 10,969 tonnes swt) andQatar (up 23%, to 8,406 tonnes swt), while Jordan and SaudiArabia increased to lesser extents. This growth, however, wasnot enough to offset the 89% decline in volumes to Bahrain(412 tonnes swt), due to the removal of the governmentsubsidy on imported Australian lamb. Furthermore, shipmentsto Kuwait (1,897 tonnes swt) for the year-to-June were down19% year-on-year, although live sheep exports to Kuwaitincreased 39% over the same period. The average export unitvalue to the Middle East for the year-to-date was A$6.49/kg –down 6% from year-ago levels (GTA/ABS).

Lamb shipments to the US have experienced considerable growth in 2016, with volumes up 15% year-on-year and 37% from thefive-year average for the six months to June, at 28,092 tonnes swt. Both chilled (14,986 tonnes swt) and frozen (13,106 tonnesswt) exports recorded increases over the period, up 11% and 20% year-on-year, respectively. The lamb export unit value wasback 12% from year-ago levels, to A$9.45/kg. Higher volumes to the US have been driven by a combination of factors. Firstly,lamb consumption in the US has reportedly increased over the past year (albeit from a very low base), due to higher importvolumes rather than higher domestic production. Additionally, in-market reports suggest the popularity of lamb in the foodserviceand retail sectors has lifted over the same period.

Sheep and lamb productionAverage lamb carcase weights in 2016 are forecast to be 22.2kg/head – matching last year's record – and due to the smallincrease in lamb slaughter, production is now expected to reacha new high of 510,600 tonnes cwt, up 1%, or 3,100 tonnes cwt,from the record set last year.

As forecast previously, average lamb carcase weights will edgehigher with time, and coinciding with the expectation of 24million lambs processed, lamb production of 542,400 tonnescwt is expected in 2020.

Mutton production forecasts for 2016 remain well below (8%) year-ago levels, at 184,860 tonnes cwt, before dipping slightlyfurther again in 2017, to 178,500 tonnes cwt. Beyond 2017, production will begin to creep higher with rising sheep slaughter andis likely to exceed 200,000 tonnes cwt again by 2019 – although this is still well below volumes prior to 2008, when the nationalsheep flock was still in a steep decline.

Source: DAWR, MLA forecasts

Figure 9 Lamb exports rising with production

0

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300‘000 tonnes swt exports (LHS)

1996

1998

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2016

f

2018

f

2020

f

% production exported (RHS)

10%

20%

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40%

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70%

Source: ABS, MLA forecasts

Figure 7 Lamb production

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600‘000 tonnes cwt production (LHS)

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carcase weight (RHS)

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23kg/head

Source: DAWR

Figure 8 Year-to-date lamb exports30

0

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‘000 tonnes swt Jan-May 2015

MiddleEast

US GreaterChina

EU PNG SEA Japan Canada other

Jan-May 2016


2011 2012 2013 2014 2015 2016 f % change

on 2015 f 2017 f 2018 f 2019 f 2020% change

on 2016 f

73,099 74,722 75,548 72,612 69,800 70,000 71,000 72,000 73,000 73,000 4.3%

-5.8% 2.2% -0.9% -3.2% -3.9% 0.3% 1.4% 1.4% 2.8%

sheep 4,933 6,063 9,614 10,086 8,487 7,800 -8.1% 7,500 7,750 8,500 8,700 11.5%lamb 17,793 20,009 21,886 22,251 22,876 23,000 0.5% 22,500 23,000 23,500 24,000 4.3%

sheep 23.2 23.0 22.5 23.2 23.7 23.7 0.0% 23.8 23.8 23.8 23.8 0.4%

lamb 22.1 22.2 21.5 21.9 22.2 22.2 0.0% 22.3 22.4 22.5 22.6 1.8%

mutton 114 140 217 234 201 185 -8.0% 179 185 202 207 11.9%

lamb 393 443 470 487 508 511 0.5% 502 515 529 542 6.1%

Sheep exports ('000 head) 2458 2,279 1,973 2,300 2,000 2,100 5.0% 2,100 2,100 2,100 2,100 0.0%

mutton shipped weight 82 107 172 186 151 135 -10.6% 126 131 145 150 11.1%

carcase weight 108 134 206 223 181 176 -2.8% 164 170 189 195 10.8%

lamb shipped weight 160 189 214 237 234 240 2.6% 240 259 270 280 16.7%

carcase weight 193 222 250 280 277 277 0.1% 280 302 315 326 17.6%

6 5 10 11 23 9 -60.9% 15 14 14 12 33.3%

0.3 0.2 0.5 0.5 1.0 0.4 -60.0% 0.6 0.6 0.5 0.5 25.0%

200 222 220 207 231 231 0.2% 222 213 214 216 -6.5%

8.9 9.8 9.5 8.8 9.7 9.6 -1.1% 9.1 8.6 8.5 8.5 -11.4%

percentage change

f = forecast (in italics)

Avg carcase weight (kg)

Production ('000 tonnes carcase weight)

Exports ('000 tonnes)*

Domestic utilisation ('000 tonnes carcase weight)

Sheep & lamb numbers ('000 head)

Slaughterings ('000 head)

at June 30

* excl. canned/miscellaneous

Source: ABS, DAWR, MLA forecasts

mutton

kg/capita

lamb

kg/capita

Source: MLA

Figure 10 National trade lamb indicator650

400

450

500

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600

A¢/kg cwt 2014

Janu

ary

Febru

ary

Mar

ch AprilM

ayJu

ne July

Augus

t

Octob

er

Novem

ber

Decem

ber

2015 2016

Septe

mber

Demand from China has reignited this year, with reports that cold store sheepmeat inventories are being reduced, which has seenChinese buyers again eager to secure product. For the year-to-date, Australian lamb shipments to China were up 30% on thecorresponding period last year, at 21,250 tonnes swt – all of which was frozen. The value of lamb exports for the year-to-Juneaveraged A$3.19/kg – down 21% year-on-year.

Australian mutton exports for the first half of 2016 declined 4% year-on-year, to 73,507 tonnes swt, although this is 10% higherthan the five-year average for the six month period. Shipments to Australia's largest mutton export destination in volume terms,the Middle East, eased 1% year-on-year, to 27,083 tonnes swt. Volumes to China for the year-to-date dropped 24%, to 11,684tonnes swt, while mutton to South East Asia registered a 3% rise for the period, compared to last year, at 13,341 tonnes swt.

In line with tighter sheep availability across the country, mutton shipments for 2016 are forecast to remain 11% lower than year-ago levels, at 135,000 tonnes swt. Reduced export volumes are expected through to 2017, before gradually increasing again outto 2020.

Exports continued...

Sheep and lamb pricesAustralian lamb prices edged higher during May and June onthe back of a late autumn break – to the point that the nationaltrade lamb indicator reached near record highs in June. Themomentum carried through to July and at the mid-point of themonth, the trade lamb indicator was up 9% year-on-year and13% compared to 2014, at 627¢/kg cwt.

How long these prices last will largely be dictated by thenumber of lambs that come onto the market and at what pointduring the spring flush, which incidentally is likely to see slightlymore lambs come through in 2016 than the same time last year.During 2014, the influx of lambs came early, and the national trade lamb indicator retreated from July, falling to 450¢/kg cwt bySeptember, while in 2015, the decline didn't come until the beginning of September, and bottomed out in the middle of October.Considering the widespread rainfall, and likely favourable spring, the lamb market may follow a similar pattern to 2015, with lambslikely to be turned off at a slightly younger age but similar weights as a result of anticipated abundant feed conditions.

The spring flush of lambs will inevitably place downward pressure on the market, especially if large numbers of NSW and Victorianlambs collide in equal masses. The extent of the decline will be supported by the reduced monthly volatility discussed in theslaughter section, the unlikely chance of any sudden strengthening of the A$ and easing production pressure from New Zealand.

Situation and outlook for the Australian sheep industry


© Meat & Livestock Australia, 2016. ABN 39 081 678 364. MLA makes no representations as to the accuracy of any informationor advice contained in MLA’s Australian sheep industry projections 2016 July update and excludes all liability, whether in contract,tort (including negligence or breach of statutory duty) or otherwise as a result of reliance by any person on such information oradvice. All use of MLA publications, reports and information is subject to MLA’s Market Report and Information Terms of Use.Please read our terms of use carefully and ensure you are familiar with its content.

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2011 2012 2013 2014 2015 % chang e2015

J an-J un2016

J an-J un

T o:

M id d le E as t 3 9 .5 4 6 .7 4 0 .9 5 2 .8 4 8 .9 2 9 % 2 7 .5 2 7 .1

G reater China 9 .2 2 2 .1 7 1 .2 6 0 .5 3 5 .6 -1 5 % 1 9 .0 1 3 .5

- China 5 .1 1 6 .4 5 7 .9 5 0 .1 2 8 .9 -1 4 % 1 5 .5 1 1 .7

- Ho ng K o ng 0 .5 0 .9 6 .6 2 .4 0 .2 -6 4 % 0 .2 0 .1

- T a iw an 3 .6 4 .9 6 .6 8 .1 6 .5 2 2 % 3 .4 1 .8

S o uth E as t A s ia 9 .0 1 1 .7 1 9 .0 2 5 .7 2 5 .4 3 5 % 1 2 .9 1 3 .3

Jap an 4 .5 3 .2 3 .8 5 .1 3 .7 3 5 % 1 .5 2 .9

S o uth K o rea 1 .0 1 .0 1 .0 1 .3 1 .5 2 9 % 0 .7 0 .8

No rth A m er ica 6 .1 8 .1 1 2 .2 1 7 .9 1 7 .6 4 7 % 7 .1 8 .5

- U S 4 .5 7 .5 8 .7 1 3 .3 1 3 .0 5 2 % 5 .2 6 .0

- M ex ico 0 .2 0 .4 2 .9 3 .7 3 .7 2 8 % 1 .6 1 .9

- O ther No rth A m erica 1 .3 1 .3 0 .6 1 .0 3 .3 7 1 % 1 .4 1 .5

E U 3 .5 3 .7 5 .0 4 .7 5 .9 -5 % 2 .4 1 .9

O ther E uro p e 3 .2 4 .5 4 .7 3 .8 1 .5 -2 0 % 0 .5 0 .7

P ac ific 2 .0 1 .0 2 .5 3 .3 2 .7 3 4 % 1 .0 1 .1

S o uth A fr ica 1 .9 1 .3 1 .2 0 .9 1 .3 -2 7 % 0 .7 0 .7

O ther A fr ica/M aur it ius 1 .6 1 .6 4 .8 2 .2 3 .6 -5 4 % 1 .8 1 .6

O ther 0 .7 1 .9 5 .9 7 .7 3 .2 3 2 % 1 .6 1 .4

T o ta l 82 .2 106 .7 172 .0 186 .0 150 .9 8% 7 6 .5 7 3 .5S ou rc e : D A W R

O th e r E u rope = C IS , E a ste rn E u rope a n d W e ste rn E u rope o th e r th a n E US ou th E a st A sia = In don e sia , S in ga po re , P h ilipp in e s, M a la ysia a n d Th a ila n d

O th e r N o rth A m e ric a = C a n a da a n d th e C a ribbe a nP a c if ic = P N G , N e w Ze a la n d & P a c if ic Is la n ds

Australian mutton exports (‘000 tonnes swt)

Australian lamb exports (‘000 tonnes swt)

2011 2012 2013 2014 2015 % chang e2015

Jan-Jun2016

Jan-Jun

To:

No rth A m erica 3 9 .4 4 2 .1 4 5 .6 5 3 .5 5 8 .2 1 7 % 2 8 .5 3 2 .3

US 3 4 .3 3 6 .7 3 9 .2 4 6 .2 4 9 .9 1 8 % 2 4 .4 2 8 .1

- Canada 3 .9 4 .7 5 .6 6 .2 7 .1 1 1 % 3 .6 3 .7

- M ex ico 1 .2 0 .8 0 .8 1 .0 1 .2 2 6 % 0 .5 0 .5

M idd le Eas t 3 4 .9 5 1 .8 5 9 .8 6 4 .2 6 8 .4 7 % 3 4 .7 3 3 .9

G reater China 2 9 .6 3 4 .6 4 8 .9 5 3 .0 3 6 .1 8 % 1 9 .2 2 2 .9

- China 2 1 .2 2 9 .5 3 9 .5 3 8 .8 3 1 .3 -2 % 1 6 .4 2 1 .3

- Ho ng K o ng 6 .2 3 .5 7 .5 1 0 .6 1 .6 4 1 % 1 .0 0 .4

- T aiw an 2 .1 1 .6 1 .8 3 .6 3 .2 9 4 % 1 .8 1 .2

S o uth Eas t A s ia 8 .9 8 .7 9 .7 1 1 .5 1 3 .3 1 8 % 6 .6 6 .7

Japan 7 .4 7 .7 7 .7 1 0 .1 8 .0 3 2 % 4 .6 4 .9

S o uth K o rea 2 .7 3 .0 3 .2 4 .8 6 .3 5 2 % 2 .7 4 .0

EU 1 3 .0 1 2 .1 1 1 .7 1 4 .0 1 0 .7 2 0 % 5 .4 4 .8

O ther Euro pe 2 .2 1 .9 1 .6 2 .1 1 .7 3 1 % 1 .0 1 .0

P acific 1 0 .9 1 4 .0 1 3 .3 1 0 .7 1 9 .9 -1 9 % 9 .0 1 0 .2

S o uth A fr ica 3 .2 2 .0 1 .8 1 .4 2 .9 -2 2 % 1 .2 1 .4

O ther A fr ica/M aur it ius 3 .4 5 .7 4 .4 4 .8 4 .1 1 0 % 2 .8 1 .7

O ther 4 .5 5 .0 6 .0 6 .7 4 .4 1 1 % 2 .4 2 .1

Tota l 1 6 0 .0 1 8 8 .6 2 1 3 .7 2 3 6 .9 2 3 4 .0 1 1 % 1 1 8 .0 1 2 5 .9

Sourc e : D A W R

Sou th E a st Asia = Indone sia , S inga pore , P h ilippine s, M a la ysia a nd Tha ila nd

O the r E u rope = E a ste rn E u rope a nd W e ste rn E u rope othe r tha n E U

Pa c ific = P N G , N e w Ze a la nd & P ac if ic Is la nds

july-update australian sheep industry projections s market information & industry insights 3...

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