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Sheep projections

The national sheep flock should begin to rebuild in 2021, following two years of decline that saw it reach historically low levels last year. In positive signs, the flock is projected to reach 67.3 million head by 30 June 2021, a 5.2% increase on year-ago levels. The rebuild in flock size is attributable to improved seasonal conditions in key sheep producing regions of eastern Australia.

In contrast to the eastern states, WA is currently in a de-stocking phase due to drier conditions throughout 2020, which have limited available pasture and surface water. As a result, it is estimated that two million sheep were transported from WA to eastern Australia last year.

The rebuild in 2021 will not be as pronounced as other recent La Niña-induced flock rebuilds, such as those in 2010 and 2016. Factors contributing to the slower predicted pace of the 2021 rebuild include the lower starting flock size and the impact of the 2019 drought, which was the worst on record for some producing regions, with many completely destocking.

Strong sheep and lamb prices are expected to remain into 2021 provided favourable seasonal conditions continue. Supply is expected to remain tight as producers retain their core breeding stock and ewe lambs, consistent with a significant flock rebuild. The rebuild will also see producers retain more older ewes than usual and many enter the market to purchase additional ewes.

Lamb numbers are forecast to grow due to increased marking rates, with Merino marking rates expected to reach 92% nationally. The improved nutrition of pregnant ewes, stemming from the abundance of quality pasture, will drive this forecast rise in marking rates. The bigger lamb crop predicted in 2021 will only lead to a slight increase in lamb slaughter for the year, up 4% to 20.8 million head, as producers intend to retain a greater percentage of ewe lambs.

Sheep slaughter is also expected to rise 2% in 2021 to 6.6 million head. The small increases in slaughter numbers predicted for both sheep and lambs are still consistent with a flock rebuild given the expectation of productivity gains such as improved lambing rates.

Lamb production is expected to quickly rebound back to 2019 levels in 2021, and post a record in 2022. In contrast, mutton production is not expected to reach 2018 or 2019 levels until after 2023. Lamb production is predicted to lift 6% to 508,000 tonnes cwt in 2021 on the back of higher slaughter numbers and improved carcase weights. The increase in the number of lambs on feed, better seasonal conditions, improved genetics, a move toward meat sheep and better management practices are all factors driving the growth in both lamb numbers and carcase weights.

Over the coming years, increases in lamb carcase weights are expected to slow in order to meet consumer preferences for smaller cuts and certain processing constraints. High current lamb prices, and abundant feed will incentivise producers to grow out lambs to heavier weights. A fall from record prices should remove the motivation to produce heavier lambs, and stabilise carcase weights.

Exports remain integral to the sheepmeat industry. It is fortunate that sheepmeat supply is currently constrained post drought, as Australian lamb and mutton faces short-term challenges in global markets.

As supplies begin to rebuild in coming years, global markets recover from COVID-19 and China's protein shortage due to African Swine Fever (ASF) recovers, Australia may have to consider new export opportunities, such as increasing access to the UK and European markets through free trade agreements (FTA's).

As the flock prepares to rebuild in 2021, starting from the lowest base in over 100 years, it is important to note that this rebuild phase could take time. It is likely to be less pronounced than other recent rebuilds as a result of the worst drought on record, the full impacts of which might not be known for years.