The MLA predictions are based on a drier season in 2012-13 because of the predicted return to an El Nino weather pattern and a $A trading at 95-110 US cents.
MLA chief economist Tim McCrae said the softening market should be no surprise to any producer.
“These favourable prices, combined with additional lambs for sale in the medium term, should help to underpin positive returns for Australian lamb producers over the next five years,” Mr McCrae said in MLA’s report.
A drier season and processors’ desire for midweight lambs is likely to see carcaseweight averages decline from record highs of 2011, back to 22kg/head this year and below 22kg next year and beyond.
Growth in Australian lamb exports are forecast to rise by 11.2pc in 2012t 178,000 tonnes shipped weight but will be checked by subdued global demand and competition from New Zealand.
They are likely to rise another 3pc in 2013.
“The increased competition from New Zealand, due largely to the weakened demand in the EU and high $NZ, has seen more New Zealand product diverted into China and the Middle East competing with Australian product,” Mr McRae said.
Good lambing percentages in 2011-12 will lead to an 7.6 per cent jump in lamb slaughter in 2012.
While the flock is believed to sit at 75 million head, further expansion is tipped in the short-term but at a slower rate than the previous two years because of drier seasons, declining lamb, sheep, wool and skin prices and rising crop prices.
But challenges confronting the industry stem mostly from financial issues – the sluggish EU market and, as a result, more New Zealand product in Australia’s markets, increasingly price-conscious consumers, the high $A and volatile global economic conditions.
MLA says saleyard lamb prices from January to July this year averaged 22-26pc lower than 2011, while lamb slaughter increased 15pc which has had a major impact on price.
“The redirection of New Zealand lamb away from the EU, and towards China and the Middle East has impacted returns for Australian exporters, which in turn has been reflected in the price exporters and processors are willing to pay for lambs at the saleyards,” the report said.
“Accentuating the impact of a slow EU market for New Zealand exporters is a record high New Zealand dollar against the Euro, along with an increase in New Zealand lamb production for the first five months of 2012.”
Meanwhile, Australia’s sheep slaughter is forecast to increase 11.5pc in 2012 to 5.5 million head, largely because 2011 recorded the lowest slaughter numbers on record - since Australian Bureau of Statistics data began in 1970 - at 4.93 million head.