China upping sticks this time last year threw a spanner in the works for our entire sheep industry. It was the first signal that sheepmeat prices were about to spiral downwards.
There was plenty of expectation it would be temporary, but here we are 12 months later, battling low prices and a fragile outlook.
There has been plenty of focus on the demise of the lamb job, but mutton has also imploded. Current farmgate prices for mutton are $2.35/kg behind the five-year average for May. On a 25kg CW cull ewe that equates to a per-head loss of $59.
Between June 2017 and January 2023, mutton prices never fell below $4/kg, buoyed by strong export demand out of China. Yet the average return at the farmgate over the past 11 months ranges from $2.87-$2.95/kg.
The low prices for cull ewes at the farmgate are directly connected to the amount of money exporters are receiving in-market. Average export values for mutton are the lowest they have been in over five years.
To put it in perspective, first-quarter 2024 average export values sat at $5.10/kg, $1/kg below the same period last year and well below 2022 levels when mutton was in strong demand. These lower values are completely influenced by the low prices on offer from China. China still takes 75% of our mutton despite growing concerns that market demand from China has a long road to recovery.
Therein lies the problem. With China effectively on the sidelines, there is no market in a position to step up and demand mutton at a price anywhere near to what has been on offer over the past seven years.
We have seen a rally in exports to the Middle East and United Kingdom this season and the values attained have been stronger than what can be achieved out of China. But the volumes are still small, accounting for 7.5% of total mutton exports this season, therefore not having any sway on what other markets will pay for mutton.
Australia is also having an impact on the global market for mutton. Increased availability has dampened its own domestic market, meaning mutton can be sold for less into export markets while still creating a processor margin. Year-to-date, the Australian mutton kill stands at over 3 million head, 400,000 head above the same period last year, but close to 1 million head above the five-year average for this period.
This has seen Australia outpace us in export terms, shipping nearly double the amount of mutton NZ has this year.
Meat and Livestock Australia are forecasting peak mutton kill in 2024, as producers work to return sheep numbers to more normal levels following the earlier rebuild. All going to plan, this will reduce their presence within export markets but volumes will still be higher than through 2020-2022.
The ban on live sheep exports from 2028, announced this week, could also impact ewe slaughter rates as Western Australian producers come to grips with what this means for the industry.
Fresh data from StatsNZ points to a significant readjustment to breeding ewe numbers in NZ as of June 30, 2023. This situation is not expected to reverse, especially given the current low returns across the sheep sector.
Weak mutton and lamb prices flow through to low returns for breeding ewes and store lambs. Low purchase prices usually are enough to generate some demand as buyers take a punt. But the sheep industry is reeling from a lack of confidence and who can blame it after 12 months of going backwards?
There needs to be a new game plan to mitigate current losses and re-establish confidence in the sector before it’s too late.
This article was written by AgriHQ analyst Mel Croad. Mel reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.
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