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Sheep projections

Encouraged by record lamb prices for much of 2019–20, improved seasonal conditions and higher productivity, sheep producers appear to have commenced flock rebuilding, despite demand uncertainties.

Though forecast rainfall through winter did not come to fruition, steady and regular falls across all southern states were sufficient to allow producers to commence rebuilding depleted flocks. As expected, sheep supply has already contracted, while lamb supply through winter was lower than forecast. Together with reports of higher-than-anticipated lambs marked this year, the estimate for the national sheep flock as at 30 June 2020 has been revised up to 63.8 million head, a 3% decline year-on-year.

It is now expected that sheep slaughter will decline to 6.3 million head in 2020, back 33% on 2019 levels, with annual lamb slaughter easing 6% on year-ago levels to 20.3 million head. With some offset from higher weights, this translates into a forecast decline of 3% and 31% for lamb and mutton production, respectively.

If the current forecast for above-average spring rainfall eventuates, producer intentions to rebuild flocks will continue to gain traction over the coming year, enabling a significant recovery in lamb supply.

The main uncertainty in the lamb market is on the demand front, with implications of COVID-19 in Australia and key export markets causing a general decline in foodservice demand, principally for lamb. Disruptions to processing capacity in key sheep producing states have seen domestic demand ease, which has caused lamb and mutton prices to decline by approximately 30% from records seen earlier in the year.

Demand should slowly begin to recover as COVID-19 restrictions on foodservice outlets ease, though the timing and extent of this is highly uncertain. The anticipated demand recovery could be offset in 2021 in the event of a global recession. Lamb exports in 2020 have been revised lower to 269,000 tonnes shipped weight (swt), back 5% year-on-year, while mutton exports are projected to decline 32% from 2019 levels to 126,000 tonnes swt.

With lamb supplies looking at a recovery and subdued demand likely to continue in the short-term, sheep and lamb prices are not expected to return to early 2020 records. However, prices could remain historically high, underpinned by positive drivers of demand in key markets, including an eventual recovery in foodservice demand locally and overseas, population growth, expanding Chinese imports, the ongoing protein deficiency as a result of African Swine Fever (ASF), stable demand for lamb from the US and limited competition in import markets. This could be offset in the short-term, however, by weaker local and global economies, and a stronger Australian dollar (especially relative to the US dollar).