Category: Sheep

Lambs to the slaughter

What’s left for lamb and sheep slaughter volumes into spring and summer?

Author- Matt Dalgleish, Thomas Elder Markets

The Snapshot

  • Approximately 10 million lamb need to be turned off in the second half of 2021 in order to reach the MLA target of 20.3 million head of lamb processed by the end of the year.
  • Lamb slaughter volumes need to replicate the pattern set in the second half of 2020 in order to reach this target, which seem achievable.
  • However, sheep slaughter volumes need to increase 40%-45% above the levels set in the second half of 2020 to reach the MLA target of 6.1 million head of sheep processed, which appears to be a tough ask given the favourable season expected.


The Detail

As we enter spring, we can calculate what is left for lamb and sheep slaughter if we are to hit the Meat and Livestock Australia (MLA) annual slaughter targets for 2021. We know the season will help dictate how many lambs or sheep are slaughtered in the remainder of the year, but it’s still worth taking a look at the forecast annual projections from the MLA June sheep industry update and assessing what they mean for upcoming supply.

MLA are anticipating annual lamb slaughter of 20.3 million head by the end of the year. The Australian Bureau of Statistics (ABS) quarterly slaughter data demonstrates that as of the June quarter there have been 10.3 million head of lamb slaughtered so far this season. This leaves 10 million head for the remainder of the season if we are to reach the MLA forecast.

Normally we see a lull in lamb slaughter volumes in quarter three, as the average seasonal pattern demonstrates. If we assume a similar pattern to lamb slaughter flows as outlined by the average trend for the remainder of this season, we can expect around 4.7 million head of lamb processed in the September quarter and 5.3 million head in the December quarter to meet the MLA annual target of 20.3 million head. This would replicate the volumes seen in the second half of 2020.

A look at weekly east coast lamb slaughter volumes as reported by MLA demonstrate that we would need to see weekly slaughter volumes between 330,000 to 350,000 head per week to match the level of lamb slaughter we saw in 2020. As the current season trend outlines, we have been managing weekly levels of this magnitude since returning from the Easter break in April, so it certainly seems achievable.

The picture for sheep slaughter is somewhat different. MLA are expecting to see 6.1 million head of sheep processed for the 2021 season. However, as of the middle of the year there have only been 2.3 million head of sheep sent to meat works according to the ABS June data release.  This leaves approximately 3.8 million head of sheep required to be processed for the second half of the year to meet the MLA target.

As the average pattern for sheep slaughter demonstrates it is not uncommon to see a seasonal lull in processing volumes in the June quarter, with volumes often gaining momentum into quarter three and four. Assuming a similar pattern of sheep slaughter as the average trend we would need to see a 40%-45% lift in slaughter on the volumes seen during the second half of 2020 to meet the MLA target of 6 .1 million head of sheep processed by the end of 2021. This would equate to around 1.7 million head of sheep processed in quarter three and 2.1 million head for quarter four, if volumes were to mirror the average seasonal pattern.

The favourable season, low supply and strong intent to rebuild the flock has seen weekly sheep slaughter volumes persist at the lower end of the normal range for much of 2020 and 2021, as highlighted by the east coast weekly slaughter figures reported by MLA. In order to reach the MLA target of 6.1 million head of sheep slaughter by the end of 2021 we are going to need to see weekly slaughter volumes average around 100,000 head to the end of the year.

With the forecast for a wetter than normal spring and the prospect of a heap of green pasture available into summer it seems unlikely there will be much incentive for producers to turn off sheep at this magnitude to reach the MLA target of 6.1 million head.

Red Meat and Wool Growth seminars

This month, StockCo had a great opportunity to be involved in the agent-focused Red Meat and Wool Growth seminars that were run by the South Australia government with PIRSA and MLA.

Our National Business Development Manager, Chris Howie, attended the event – rubbing shoulders with agents and brokers from all over South Australia. Covering sheep and wool on day one and cattle on day two, the seminar saw a combined attendance of 64 (with some people attending both days), and eight agencies plus facilitators were all represented.

Michael Blake, Senior Advisor at PIRSA and Red Meat and Wool, focused on eTech opportunities in the livestock industry and coordinated both days. Jason Trompf combined humour with facts to speak to agents about helping producers read animal health signals in order to lift survival rates and productivity.

The opportunities for conversations between agents and wool brokers were very good, with a deep-dive into breeding traits that drive the overall performance of producer’s enterprises removing the traditional fixation on single-trait genetic selection. The fact that sheep in-particular are a multi-income system these days – and should be developed accordingly – was a strong theme.

One of the main take-home messages was that next-generation agents should create these discussions and the resultant value proposition. Both Jason and Michael helped the agency group understand how to create and capture meaningful data from individual enterprises, using ever-evolving agricultural eTech, including the utilisation of electronic eartags as management tools within farming enterprises across SA and the wider industry. The ability to capture this information allows significant and immediate opportunities to lift farm profitability, without an excessive cost for producers and agents alike.

The South Australia government, along with MLA, is the only state driving a forum targeted at agencies and, as Chris Howie said, “It’s a no-brainer that it should be adopted across the country. Too often when the various peak bodies meet, the agency community’s capacity to drive change is missed.”

The Leahcim/Panlatinga sheep stud and Days Whiteface Herefords were involved in the hands-on delivery across both days, with a focus on the holistic industry approach that’s required when looking to the future of the livestock and wool industry.

  • Upcoming livestock forums: 12th July, Naracoorte. 14th July, Jamestown. 15th July Kimba
  • Regional animal health workshops: 13th Sept, Jamestown. 14th Sept, Hawker. 17th Sept, Minlaton
  • Livestock tech expos: March 2022, South East and Lower North

The current sheep-breeding market – why now’s the time to act

After multiple years of drought conditions, the current La Nina weather system has given Australian sheep owners a much-needed reprieve.

As the country comes out of drought, farmers – particularly across Australia’s east coast – find themselves coming into a much more favourable season, with plenty of grass available for livestock to utilise. This in turn has led to a very competitive re-stocker market, resulting in high female sheep prices – and producers are now faced with the challenging decision of when or if to buy.

But with these favourable conditions comes the problematic issue of affordability and cashflow management. A lot of drought-hit producers had to reduce their sheep numbers in order to remain viable, and many now find themselves with limited capital on hand to reinvest. Additionally, many producers had money tied up in purchasing fodder to help their existing animals survive the drought – a situation that now further compounds the issue. In what’s currently a hugely competitive market, with large numbers of farmers wanting to rebuild their flock, many are struggling to find the initial outlay that lets them invest whilst the outlook is promising.

With replacement ewe prices varying anywhere from $350-$400+/hd, the thought of spending that amount can be a daunting one – particularly when, over the past 12 months, the lamb and mutton market has seen a considerable amount of volatility that casts doubt on whether these prices are justifiable. A productive ewe has to raise a lamb or twins to compensate for those that don’t, and a sudden shift in carcass values could mean the difference between making the right call or owning some very expensive animals.

It’s this situation that’s led to many farmers approaching StockCo about our breeder finance offering – a product that means they can avoid having to outlay a large sum of money to get themselves into a line of ewes. Instead, breeder finance enables them to spread the cost of the sheep – or cattle, where relevant – over a number of years, as well as offering a chance to free up additional funds to spend elsewhere in business, such as on infrastructure expansion or other farm improvements. After what’s been a challenging period for producers across the country, the signs ahead are finally promising – as long as the finance is in place to help farmers take full advantage of the conditions.

Mutton to get expensive, relatively speaking.

Key Points

  • Sheep slaughter is expected to get tight, both in absolute terms and relative to lamb.
  • MLA’s forecast is for sheep slaughter to move back towards the levels of 2016-17.
  • There is less downside for sheep prices than lamb values as we move towards the spring.

As we come out of the winter lull evidence is starting to point towards a recovery in lamb supplies, and a continuing dearth in sheep. We have seen this before, but maybe not to the extent that is expected, though we can still look for clues as to how prices might react.

Lamb supplies are bottoming out, and on the way up, and sheep supplies are heading lower as the flock rebuilds. The difference in supply trajectories as we move into spring will see mutton supplies heading back towards the lows of 2016-17, and possibly even lower.

Figure 1 shows how lamb and sheep slaughter has behaved over the long term, with a 12 month moving average over the top to smooth out the chart.  Since 2000, we have seen a divergence of lamb and sheep slaughter. The move towards meat and dual purpose sheep seeing more lambs being produced, along with more Merino wethers being slaughtered as lambs, has increased lamb supplies and decreased sheep.

We can see that in the last year, lamb slaughter has trended down more quickly than sheep.  However, we expect the rolling average to turn upwards for lambs and continue down for sheep.  With lamb and sheep supplies both falling, relative supplies have remained steady since late 2018.

Figure 2 shows sheep slaughter as a proportion of lamb slaughter which highlights that in relative terms, we only just saw a move in tightening sheep supplies in April.  The average sheep slaughter as a proportion of lamb has been tracking at 43% for the last two years.  Meat & Livestock Australia’s (MLA) industry projections suggest that sheep slaughter will be 35% in 2020 and 33% in 2021.

In 2016 and 2017 sheep slaughter was 30% and 33% of lamb slaughter, so while sheep supply is set to be lower than those years, lamb slaughter will be lower as well.

The last two times sheep slaughter was below 35% of lamb slaughter, mutton prices narrowed their discount to lamb prices. Figure 3 shows the National Mutton Indicator (NMI) spread to the Eastern States Trade Lamb Indicator (ESTLI).

From 2010 to 2012, when sheep slaughter was at its tightest, the NMI ranged between a 20 and 30% discount to the ESTLI.  In 2016 and 2017, mutton values were not as strong relative to the ESTLI, but they did sit in the 20-30% range for the first half of 2017.

What does this mean?

For most of the last year the NMI sat between a 30-40% discount to the ESTLI.  With sheep slaughter falling relative to lamb slaughter, we can expect the NMI discount to shrink over the coming months, as it is likely to return to the 20-30% discount level.

Moving toward spring, the mutton discount is likely to shrink due to falling lamb prices rather than rising mutton prices.  If mutton remains around 650¢, the ESTLI will be 800-850¢.  Looking from the other angle, if the ESTLI falls back to 750¢, mutton will be 550-620¢.  There is less downside for mutton than lamb over the coming year.

Sales down but stocks up

The stark reality of the wool market woes is reported in this week’s AWEX report; the EMI in Au$ terms is 605 cents or 35% lower than the same period last year. As far as supply is concerned, over the past three months there have been 70,000 bales fewer sold than the corresponding period last year. The figures for bales sold year-on-year are also telling, with 250,000 or 16.7% fewer bales having been sold to date, representing not only a fall in supply but also the higher withdrawal and pass-in rates by growers.

The Eastern Market Indicator (EMI) again disappointed falling by 29¢ this week to close at 1,110¢. The Australian dollar firmed to US$0.695 which influenced the EMI in USD terms to fall by a more modest 12¢ to 771¢. Fremantle came back to selling with the Western Market Indicator playing catch-up falling 71 cents from the previous sale to settle at 1,176¢.

Turnover was up with the inclusion of Fremantle to $31.75 million this week, with the average bale value of $1,280 slightly lower than last week, taking the season to date value to $1,972 million.

After growers withdrew 6.8% of the offering, 28,029 bales came forward this week, and with a pass-in rate of 11.5%, 24,804 bales were sold. This was almost 10,000 bales up on last week.

Mecardo reported this week that unsurprisingly wool stocks in wool stores have grown as the fall in demand flows back to the auction room causing a dramatically reduced clearance. In Andrew Woods article this week he noted “The indications are that this state of affairs will persist into the coming spring. In the longer run the stocks will slow the subsequent (price) recovery but not to the extent of the 1990s as production is now low whereas in the early 1990s it was at record levels.”

The Crossbred sector was also impacted by the weaker market with falls of 20 to 40 cents across the microns.

Cardings have been holding reasonably well, but this week the weight of negative sentiment saw the cardings indicator in Sydney retreat 44 cents, Melbourne minus 50 cents and Freo pulling back 19 cents.

The week ahead

Next week all centres sell on Wednesday & Thursday with 31,072 bales on offer. This is almost an identical offering as this week; however, the question for the wool market is one of demand and this for now is weak.

Mutton EOFY sale

With not all processors operating fully and sheep supply tight, sheep slaughter dropped to the lowest level of the season last week. It’s been a while since we last had sheep slaughter this low, In fact, the last time was back in 2011. Luckily prices are more robust now, but the reduced buying interest saw modest falls for mutton.

Just 37,998 sheep were processed in the week ending the 19th of June (Figure 1). While it was 53% under the five year average for this time of year, we know it’s far from an average season.  What does make the better comparison is the 2011 season, where the same week saw just a 3% difference in sheep slaughter levels.

There was enough room for lambs to be processed though. Lamb slaughter held steady at recent levels with most yards reporting a slight lift in lamb supply, particularly heavier lambs.

Victoria, Tasmania and parts of Western Australia all received a good drenching in the week passed, and all saw mutton values dive. The result was a fall of nearly 50¢ for the National Mutton Indicator to 626¢/kg cwt (Figure 2).

There were mixed reports for lamb categories between yards this week, but most moved slightly lower. The Eastern States Trade Lamb Indicator (ESLTI) lost 7¢ on the last week of the 2019/20 sale season to finish at 870¢/kg cwt, just 3% below last years level.

Heavy lambs had a noteable fall of 12¢ to 827¢/kg cwt on the east coast, tested by another week of uncertainty around retail and export demand. A 31¢ decline was recorded for Restocker lambs. Merino lambs were the only category to see a gain on the week, up 14 cents to 804¢/kg cwt.

Next week:

Earlier in the week we looked at how lamb and sheep supply is likely to play as we move closer to spring, and how prices might react (view here). Lamb supplies tend to stay relatively steady at this time of year but rebuilding efforts will keep sheep in paddocks and provide some support to both mutton and lamb prices.

Lamb supplies on road to recovery

  • The latest sheep and lamb industry projections show a slight tightening in annual sheep and lamb supplies.
  • Second half lamb slaughter could be marginally higher than 2019.
  • Forecasts suggest we are in for two years of tight sheep supplies.

As we move through the depths of winter and tight ovine supply, attention is turning to the spring and summer. With winter lambs hitting the ground now, and many of the new season supply coming in the next two months, we take a look at what we might see in terms of lamb and sheep supply for the rest of the year.

Meat & Livestock Australia’s (MLA) industry projections put some figures around total sheep and lamb supply for 2020, and it obviously takes into account what has been slaughtered already.  As such we deduct slaughter to date to give us a rough idea of what MLA think is to come for the rest of the year.

April lamb slaughter came in well below last year’s levels. Coming in at 1.58 million head, April lamb slaughter was 16% below last year, but it has been lower recently, in 2017.

Based on MLA’s weekly slaughter statistics, it looks like May lamb slaughter will be higher than April, but much lower than last year. Lamb slaughter in the first 2 weeks of June has also been lower, and it looks like we might be headed for the tightest slaughter month since at least 2005.

If we take what has been processed to date, and deduct from the latest forecast of 20.6 million head, the supply in the second half of the year looks like figure 1.  If it comes to fruition, lamb supply from July to December will actually be 3% stronger than in 2019.

Figure 1 also shows how the 2021 forecast will pan out with average seasonality.  With a return to more normal seasons, we should see similar slaughter to this year in the first quarter, and stronger levels for the remainder of the year.

There is no such increase on the horizon for sheep supplies.  The second half of 2020 is expected to see slaughter rates 35% lower than in 2019.  Sheep supply is expected to increase in the spring, but it will still be well off the strong levels seen last year.

The forecast for 2021 sheep slaughter is the same as in 2020, at 6.5 million head. Figure 2 shows that normal seasonality will see 2021 slaughter track at similar levels to this year.

What does this mean?

We have noted before that we are currently seeing the low for lamb supply, with year on year increases expected from here. It will be up to demand to drive lamb prices in the spring. Supply will be historically low, but it is hard to see demand matching the levels of last year, and therefore it’s hard to see prices matching either.

Tight sheep supply might save lamb prices. The sheep supply dearth will leave some more space for lamb, if export demand is there to soak them up.

Low yields weighing on the market

The market was again cheaper this week, with the large supply of “low yielding” wool continuing to attract discounts negatively impacting on the EMI as buyers struggled to fit these types into orders. While the drought impact has caused yields to be lower, this week in Mecardo Andrew Woods reported that yield was 3 – 4% lower compared to previous droughts.

The Eastern Market Indicator (EMI) eased again by 32¢ this week to close at 1,139¢, while the Australian dollar also softened to US$0.69. The EMI in USD terms also fell 31¢ to 782¢. Fremantle again had a recess with the Western Market Indicator unchanged at 1,247¢.

Turnover was back below $20 mill to $18.50 million this week, however, the average bale value of $1,307 was $150 per bale up on last week, taking the season to date value to $1,941 million.

After growers withdrew 7.2% of the offering, just 15,800 bales came forward this week, and with a pass-in rate of 10.8%, 14,146 bales were sold.

It was noted this week that area planted to crops has increased year on year, with NSW up 95% on last year to 3.7 million hectares. (Read about this here on Mecardo).

This is confirmation of our concerns that the continued shift to grain production will continue now that the drought has broken, with the challenge for Merino sheep to regain lost acres going to be difficult. Any increase in wool supply in the medium term is likely to be modest at best.

The Crossbred sector ended a positive run with across the board falls of 20 cents.

Cardings proved more resilient despite Sydney reporting a 16-cent fall, Melbourne was dearer by 7 cents.

The week ahead

Next week Fremantle resumes and all centres sell on Tuesday & Wednesday with 30,240 bales on offer.

Supply and price edging lower for lambs

Lower supply wasn’t enough to put a halt to the softening lamb prices this week, with what appears to be wavering demand. Small sheep numbers on the east coast however, did help to lift mutton prices.

So far in June, east coast lamb slaughter has trended 12% below the five year average, and 4% below the tight supply year of 2011. The “tight supply getting tighter” situation continued last week with lamb slaughter down 6% on the week prior (Figure 1).

East coast sheep slaughter was steady for the week ending the 12th of June.  59,902 head were processed which was within the lower end of the 70% range for this time of the season.

Both lamb and sheep yardings were lower again, for a combined throughput of 161,175 head at east coast saleyards (Figure 2). This was 17% below the five year average level for this time in the season. The big drop came from NSW which saw 30% fewer lamb yardings last week compared to week earlier numbers.

Weaker lamb yardings was met with weaker prices. The Eastern States Trade Lamb Indicator lost 24¢ to come back under the magic 900¢ threshold, ending at 882¢/kg cwt. Trade lambs fared better in Western Australia, up 13 cents to 817¢/kg cwt.

Sheep continued to receive support, resulting in a 2% rise in the National Mutton Indicator on the week to close at 672¢/kg cwt.

Next week:

Declining supplies and softening prices is not a good sign for demand. We won’t sound the alarm yet, but the test will come in July when lamb supply starts to ramp up.

Breaking down the flock

Key Points

  • The ABS Commodities survey data for 2018-19 was released late in May, confirming a new low for the flock.
  • NSW had the biggest decline in sheep numbers, while on a National scale it was lambs on hand which were down the most.
  • Breeding ewe numbers did not hit a new low, meaning the lamb crop could recover quickly.

Many readers will remember filling out the Australian Bureau of Statistics (ABS) Agricultural Commodities survey last July and might be wondering what happened to the data. Well, it was released at the end of May, and we’ve seen the headline flock number, but breaking it down makes for some interesting reading.

There is more data revealed in the ABS Agricultural Commodities Report than we can discuss in one article, so we’ll start with the big numbers.

We know the Australian sheep flock is at an over 100 year low, but in NSW June 2019 marked the lowest sheep flock for the state on record. Figure 1 shows the NSW flock fell 11% from June 2018, but it remains the biggest sheep state, accounting for 34% of the National flock. In 20 years the NSW flock has almost halved.

South Australia also had a heavy fall, losing 10% of their flock, with Victoria down 5%. WA managed to largely maintain their flock, down just 1%, but it has still halved since 1995.

With NSW bearing the brunt of the drought and SA also being heavily impacted, it should be no surprise that those two states saw the biggest downturn.

Despite the total flock being at its lowest level since 1905, the breeding ewe flock at the 30 June 19 was still marginally above 2016 (Figure 2). The flock fell 7%, breeding ewes were down 4.7%, and lambs under 1 year were down 11.6%. Strong wool prices helped save some wethers, with the rams and wether portion of the flock down just 2%.

The lamb portion of the flock was down due to a smaller lamb crop in 2018-19.  In fact, the lamb crop was at its lowest level since our records start in 2009 (Figure 3). The green line shows lambs marked as a proportion of breeding ewes on hand as at June 30 the previous year. Low lamb marking in 2018-19 shows the worst reproductive performance in six years.

We can see that from 2016 the flock bounced back, with the lamb crop coming in at 88% of the ewe flock. While the ewe flock is likely to be lower this year, the lamb crop and flock numbers can recover from lows with a good season.

What does this mean?

The ABS data clearly shows how the season can impact lamb supply and flock change. From this, we can extrapolate that 2019-20 likely had a small lamb crop and that the ewe flock will have eased further. We also know that with the better season currently being experienced, we could see the lamb crop bounce back to 30 million head in 2020-21 or possibly even higher.