The lamb market is currently experiencing a downward pressure on prices, influenced by a variety of factors. In Australia, aggressive flock rebuilding efforts following La Niña weather conditions have resulted in the highest flock levels since 2007.
This increase, coupled with below-average rainfall, has led to a significant rise in lamb slaughter rates – over 20% higher in Q3 2023 compared to the same period in 2022, and almost 35% higher for adult slaughter rates.
Australian lamb export volumes have also seen a notable increase, averaging around 18% higher than the previous year, with mutton export volumes about 50% above last year’s figures. This surge in Australian exports has intensified competition in various markets, including the UK, particularly following the implementation of the Australia-UK Free Trade Agreement earlier this year.
BNZ senior economist Doug Steel points out that New Zealand lamb prices tend to be lower during El Niño weather patterns, and the current season is aligning with this trend. This suggests that the challenges to lamb prices may persist for some time.
Additionally, key trading partners like China are experiencing an economic slowdown, with sheep meat exports to China down 12% to levels last seen in the 2018/19 season. While export lamb values have generally been holding up, disentangling the effects of supply-side competition from genuine changes in market demand remains complex.
Steel highlights that evolving lamb demand in China and a recent increase in retail sales will be crucial in determining future price levels.
However, the current supply dynamics pose a risk of lamb prices remaining lower for an extended period than some forecasts suggest. He also notes that lower prices could introduce new customers to lamb products, potentially altering preferences and benefiting prices in the long term.
BNZ’s current season forecast anticipates lamb prices to be 18% lower than the last season, with an increasing risk of prices falling below the $6/kg mark during this season. This would mark the lowest price since 2017 on a dollar basis and the lowest since 2008 when adjusted for inflation.
Steel concludes by noting that the above-normal supply resulting from weather patterns will eventually end, as seen in previous cycles. He suggests that if the current situation is indeed cyclical, an improvement in prices can be expected, although it may be some time away.
