Mecardo Analysis - At least some of the ovine price rise passed to export markets

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By Angus Brown | Source: MLA, Global Trade

Key points

· Lamb and mutton export values have grown markedly in the last three years.

· Unit values of lamb and mutton exports rallied in July in response to higher saleyard values.

· Strong demand allows exporters to put prices up, but have found resistance in the last month.

Volume and price converged to push export values past the $250 million mark in April, and the appetite for lamb has not waned. Lamb export values hit a new record high in April and in June the unit value headed towards record highs. Meanwhile, mutton values seemed to have come up against a ceiling when broken down into ¢/kg but also broke higher in June, hitting new highs.

While supply is definitely playing its part, much of the credit for record sheep and lamb prices can be put down to export markets. The latest export value numbers released for June shows a small decline in total lamb export values and a small rise for mutton.

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We did, however, see a new record for lamb export values in April, when strong supply and strong price combined to lift lamb export values over $250 million for the first time (Figure 1). The growth in export values has been considerable over the last three years. For the 2018-19 financial year, lamb exports were worth $2.64 billion, up $865 million, or 49% on the figure for 2015-16.

Export values of mutton have been falling this year but this is down to declining volumes. For the 2018-19 financial year, mutton export values were $1.24 billion, and over three years have outstripped lambs gains, having added 77%. Unlike lamb, a part of the rise in mutton export values was down to stronger volumes, which gained 27%, but plenty was due to price.

Dividing the export value by export volumes gives us a ¢/kg value for lamb and mutton exported. Figure 2 shows lamb export values in ¢/kg headed back over 1100¢ in June, hitting 1134.7¢/kg swt. While not quite breaking the record set in September last year, we can expect that in August.

June also saw mutton export values in ¢/kg rally, but as with lamb, it fell short of the record set in September last year. We can see that the margin was tighter for exporters however, with the mutton indicator discount to the export value at 192¢ while it was 380¢ last September.

What does this mean?

The good news for sheep and lamb producers is that exporters have been able to pass higher lamb costs on to overseas customers, at least in part. We know lamb prices kept rising in July, and this probably saw a margin squeeze as exporters came up against resistance at record levels and cut kill space.

Mutton is in a similar situation. It has come up against resistance in both export value and saleyard prices. Mutton supply is unlikely to recover quickly, however, so export values might be maintained at higher levels for a while yet.

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