3. MLA sheep industry projections mid-season update - sheep flock and supply

Preliminary estimates released by the ABS indicate that the Australian sheep flock as at 30 June 2011 was 74.283 million head, an estimated 4.9%3 increase on the previous year – beginning to reverse the long term liquidation of the flock. With the majority of the flock growth in sheep other than breeding ewes, wether retention for wool production appears to be in the minds of more and more sheep producers.

In 2012, the flock is forecast to consolidate the increase of the previous year, growing another 4.2%, to 77.38 million head.

With an extended run of historically high prices for lambs and sheep at all levels of the supply chain since 2009, including for restockers, processors (both at saleyards and direct to works) and the live trade, the incentive for flock rebuilding on the meat side of sheep production has been clear. A recovery in wool prices since November 2010 has added momentum to the flock rebuilding. Even with a decline in wool prices during the second half of 2011, the returns for wool remain attractive (see below).

While the good prices received for lambs and sheep over recent years has been driven by lower Australian and global supply, emerging markets have increased their demand for sheepmeat which bodes well for a larger Australian sheep industry.

In the MLA and AWI sheepmeat and wool October 2011 producer survey, 41% of producers believed that the seasonal conditions in their region were better than in 2010, 29% thought that they were the same, and 30% thought they were worse than last year.

While the results for most states do not seem particularly positive, this needs to be put in perspective of vastly improved conditions during spring 2010. WA was the exception, with the overwhelming majority of respondents indicating better conditions than the previous year after rainfall across most agricultural regions from late May onwards.

Results from the survey also reinforced the intention to rebuild the flock in 2012. 41% of respondents stated they intended to increase the breeding ewe flock, 49% intended to maintain their ewe flock, and only 8% intended to decrease their ewe flock. In addition, there is a growing proportion of producers indicating their intent to increase the size of their wether flock, a product of the return of wool as a more important source of income.

The methods used by producers to increase the ewe flock were relatively stable across the country, with the retention of more replacement ewes and older ewes the main methods identified in the February, June and October surveys in 2011. A significant portion of respondents also noted a willingness to purchase replacement ewes, despite the high prices demanded through the year.

Anecdotal evidence also suggests that there has been a shift to ewe lambs and earlier maiden joining.

With the seasons assumed to return to more normal conditions from 2013, the flock should expand at a slower rate, settling at a forecast 82.65 million head in 2016 – 17% above the low point in 2010. Compared with the August mid-year update, this is a significant upward revision, after higher than expected flock growth in 2010-11.


Breeding ewes

Preliminary Agricultural Census estimates for 2011 have the breeding ewe component of the Australian sheep flock at 42.8 million head. This represents 57.6% of the national flock, a lower proportion than 2010, reflecting the intent to retain wethers and the larger number of lambs marked during 2010-11.

Ewe numbers are expected to grow at a similar rate to that projected in August, reaching 47.8 million in 2016. With a higher than previously forecast total growth rate in the flock, the ewe proportion will not grow significantly over the forecast period, assuming that wool prices remain at a level to encourage wether retention.

Results from the October 2011 MLA and AWI producer survey indicated that Merino ewes accounted for 71% of total ewes on hand across Australia. 50% of ewes were recorded as Merino, to be joined with a Merino ram, and 21% were recorded as Merino, to be crossed with another breed. In addition, a further 14% were first cross ewes.

The breeding ewe proportion of the flock is forecast to remain relatively steady, at around 58%, over the projection period, halting the increase seen in recent years. While there is renewed interest in wethers for wool income, the returns from lamb production are still high enough for ewe retention to remain a priority.

Sheep slaughter

Australian sheep slaughter in 2011 reached an estimated 4.86 million head, 21% lower than 2010 and the lowest calendar year total on record4. Combined with the low opening flock were the rebuilding intentions of a large proportion of producers. This reduced the number of ewes available to processors, and with wool prices remaining relatively strong, wethers also began to be retained.

Sheep slaughter is expected to recover over the projection period, reaching 8.1 million head in 2016 – 67% above the low point in 2011, but still 21% below the five-year average between 2006 and 2010. However, it should be noted that 2006 to 2010 was a period of sharp liquidation of the national flock.

2012 sheep slaughter is projected to increase 8% on the low 2011 number, to 5.25 million head, although this could be slightly higher if processors compete with the expected rise in live shipments. Live sheep exports reached the lowest number on record in 2011, at 2.458 million head. In 2012, with the expected turnoff of some wethers that had been retained in the past year, and strong demand in the main Middle Eastern markets, total live sheep exports are projected to grow 5.8%, to 2.6 million head. This would still be the second lowest annual number on record, with the historically small national flock remaining a key factor. Another factor to consider is the rollout of the Export Supply Chain Assurance System, with the first tranche in the largest markets (Kuwait, Qatar, Bahrain and Turkey) to be in place by 1 March 2012.

As a result, total sheep turnoff (live sheep exports and slaughter) is now expected to rise 7% in 2012, to 7.85 million head. This is projected to rise to 11.2 million by 2016, assuming seasons return to more normal conditions from 2013.

With the sharper rise in the flock in 2011 and 2012, and a gradual improvement in sheep slaughter over the forecast period, mutton production is expected to rise by 58% on 2011, to 179,000 tonnes cwt in 2016.


Australian wool production outlook

The Australian Eastern Market Indicator (EMI) for wool averaged 42% higher during 2011 than in 2010, at 1,279¢/kg clean. Following a sharp increase late in 2010, the indicator continued to rise through the first half of 2011 before the mid-year close in auctions. It then eased and steadied in the second half of the year.

The Australian Wool Production Forecasting Committee (AWPFC) predicts a 1.5% increase in wool production for the 2011-12 financial year, to 350 million kg greasy – with a 3.3% increase in the number of sheep expected to be shorn. However, average fleece weights per head are forecast to decline 1.7% during 2011-12.

Total Australian and global wool stocks are forecast to remain relatively tight, following the run-down of Australian volumes. Prices will depend heavily on economic conditions in Europe, and the flow-on effects on China (Australia’s largest market for wool). ABARES is forecasting a 2% fall in the wool price (EMI) in 2011-12 (though with a 4% production growth, higher than that predicted by the AWPFC).


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