Australian Sheep Meat Outlook Conditioned by Seasonality and Beef Market Developments

September 2005 - The Australian sheep flock is forecast to fall in 2005-2006 by around 2 million sheep. Critical factors influencing the size of the flock are the emerging seasonal conditions, returns to both wool and sheep-meat production and the relative return to alternative broad-acre agricultural enterprises.

With dry conditions assumed to continue for the remainder of 2005, sheep numbers will be reduced, particularly in the eastern states and South Australia as feed becomes scarce. The spring lambing is also expected to be adversely affected by expected difficult winter conditions, particularly in New South Wales, which normally carries around a third of Australia?s flock.

Sheep meat is an increasingly important co-product of wool operations, although over recent years in some areas, wool might be rightly considered a co-product of sheep-meat operations. The outlook for sheep meat is generally positive, particularly over the longer term and hence sheep-meat production will continue to be important to the overall return to sheep operations.

Two factors are particularly important to the short-term (2005-2006) outlook for sheep meat. These are the poor seasonal outlooks and developments in the beef market. Continuing dry conditions in eastern and South Australia are expected to result in increased turnoff of adult sheep, resulting in an increase in mutton supplies. Conversely, lamb supplies may become tight late in 2005 as a result of a poor spring lambing.

In Western Australia, which carries around a quarter of the national flock, good autumn rains have led to strong restocking demand for ewes, causing ewe prices to increase considerably since March 2005. As a consequence, higher spring-lamb supplies are forecast in Western Australia, which will partly offset lower lamb supplies in the eastern states.

Adult-sheep slaughtering is forecast to increase by 3 percent in 2005-2006, while lamb slaughtering is forecast to decline by 2 percent. If seasonal conditions improve in the eastern states and South Australia, demand for ewes would be expected to return, reducing the slaughtering of adult sheep and raising sale-yard sheep prices.

Beef market developments
A critical factor in the outlook for the Australian lamb market is the timing of the resumption of beef trade between the United States, Japan and the Republic of Korea. The United States has been excluded from the Japanese beef-import market since 2003 and, as a result, demand for Australian beef has been high. Hence, sale-yard beef prices have also been relatively high.

For the current beef outlook, it has been assumed that the United States-Japan beef trade will resume in early 2006. At that time, Australian sale-yard prices for beef are forecast to fall as the United States re-establishes its trade position with Japan. These developments will place downward pressure on Australian lamb prices at that time.

In 2004-2005, lamb prices are estimated to have averaged 346 cents a kilogram (dressed-weight equivalent), down 7 percent from 2003-2004 because of higher production. In 2005-2006, lamb prices are forecast to fall a further 1 percent to average 342 cents a kilogram.

If seasonal conditions improve in the eastern states and South Australia, restocking activity would be expected to return, raising demand for ewes, reducing turnoff of adult sheep and raising sale-yard sheep prices. Equally, if the United States-Japan beef trade does not resume in early 2006 as assumed, higher beef prices in concert with tight lamb supplies could result in lamb prices averaging significantly higher in 2005-2006.

Live-sheep exports
In 2002-2003, prior to the ?Cormo Express? incident, Australia exported around 5.8 million sheep; Saudi Arabia was the largest export market. By 2004-2005, live-sheep exports had fallen below 3.5 million.

In 2005-2006, Australia?s exports of live sheep are forecast to increase by 24 percent to 4.3 million. The increased demand for adult sheep will provide some support to domestic sheep sale-yard prices in 2005-2006. Poor seasonal conditions can also be expected to reduce supplies of suitable sheep and hence provide positive support for prices, although this effect is expected to be limited to western Victoria and South Australia.

Another risk factor that may affect the live-sheep trade, at least in the short term, is the limited availability of vessels that comply with updated welfare standards.