Sharp declines for sheep and lamb prices could be short-lived but the recovery hinges on how quickly the global foodservice sector bounces back from COVID-19, market analysts say.
As farmers continue to enjoy historically high prices for sheep and mutton, two major indicators have fallen in recent weeks as global demand continues to ease due to the pandemic.
The Eastern States Trade Lamb Indicator dropped 10 per cent last week, while the Heavy Lamb Indicator is back215 cents on year-ago levels, prompted by a dip in consumer demand abroad.
Countries like the US, where 60 per cent of Aussie lamb exported is consumed in foodservice, are yet to show any strong signs of a recovery, sparking concerns about supply and demand come spring.
Meat & Livestock Australia senior market analyst Adam Cheetham said prices had eased in recent weeks because processors were less inclined to pay higher rates due to the slowdown.
Despite the uncertainty, he said Australia was well-placed to service global markets, particularly due to the effects of the African swine fever which is a key driver in global protein trade.
"Producers should have confidence based on the improvement of seasonal conditions we've seen since the beginning of the year," Mr Cheetham said.
"We are also starting to see an uptake in demand by key markets but that's still very much in the balance."
Under-pressure prices are likely to continue in the coming months and into September when sheepmeat traditionally experiences a drop in price coinciding with the spring flush.
Mr Cheetham said the recovery of global trade partners and places like the east and west coasts of the US where large volumes of lamb go was critical to ensure prices maintained stable levels.
"In the last two years we've seen prices peak in July/August whereas this year we peaked in March on the back of good rainfall so we've seen that price decline. We're then going to see perhaps further prices easing in the next six-to-eight weeks when new season lambs start to hit the ground," he said.
"Given the drought we've been through, there will be fewer lambs coming through the system but hopefully there is an uptake in demand by the foodservice sector which will mean a market for this product.
"This is where the balance is going to be critical because we're already seeing prices ease much earlier."
Estimates by MLA indicate the national sheep flock will decline to 63.5 million head in 2020 but will rebuild to almost 70 million in the next three years.
"Producers, particularly in Victoria, have more confidence to build flock numbers earlier whether that's retaining ewe lambs or older breeding ewes, or joining earlier," Mr Cheetham said.
Improved conditions a silver lining for Vic lamb producers
Western District producer Rich Edgar expects lamb prices to continue to ease but believes he is well-positioned to bear the brunt on the back of favourable seasonal conditions.
Mr Edgar runs a mixed operation at Nareen, north-east of Casteron, and plans to supply about 9000 lambs to Safeway between November and April 2021.
"We expected prices to come back a bit but we don't know if that will be 10 per cent, 20 pc or 40 pc but we are planning for a drop in demand," Mr Edgar said.
"The prices we have been receiving are extremely good so a 20pc drop wouldn't be the end of the world because we have been largely unaffected by coronavirus so far."
Mr Edgar breeds his own replacement ewes and sells most of the wether and terminal lambs at about 23 kilograms.
"It will be a bit harder to have faith in the market if coronavirus is still around in December. We will have to decide whether to keep them on and finish them as opposed to selling them as store lambs," he said.
Mecardo managing director Robert Herrmann said while prices may continue to ease, improved seasonal conditions could have boosted weights of lambs dropped in April and May by up to 25pc.
"The spring flush will come but it might start earlier and if you've got a good season and it's not a forced rush," he said.
"Farmers with feed will hold lambs back and take them to heavier weights if the market softens."
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