A ‘perfect storm’ of factors has caused sheep skin prices to plummet by around 80% in the past 12 months, directly impacting on lamb prices.
When the purchase price of lambs or sheep is measured on a dollar per head basis, the value of the skin can add up to well over 10–15% of the purchase price when the market is in good condition.
However, this percentage can be much lower, as has been the case so far in 2012, averaging 5–10%, which has a direct impact on what producers take home.
If we go back to the first three months of 2011, Australian lamb prices on a dollar per head basis experienced a run of record high prices.
Markets from SA, Victoria and NSW all held the record per head value for a pen of lambs, which exceeded A$250/head (it should be noted the record per head prices were achieved on the back of exceptionally heavy carcase weights – largely unrepresentative of the large majority of lambs that enter the market below 26kg cwt.)
Contributing to the run of record per head prices in 2011 was near-record high lamb skin values, which topped at an average of $27.50/skin* in March last year. So far in 2012, skins averaged only $8.50/skin* in May – a decline of 69% year from the peak in 2011.
In comparison, lamb prices in carcase weight terms (which excludes the value of the skin), were 25–30% lower year-on-year, but again this is compared to near-record highs in 2011.
So what has driven the contraction in lamb skin values in 2012?
Undoubtedly, the 15–20% increase in the national lamb supply has impacted the market – largely a consequence of the better seasons over the past two years and larger flock numbers.
However, it is the demand situation in overseas markets which has had the biggest impact. Buyer demand in northern hemisphere markets has been very sluggish so far in 2012 – a combination of weak consumer sentiment (given the economic turmoil) and the warmer winter across key markets.
In addition, the high and volatile Australian dollar has only added to this tentative buying, particularly from key customers in China and Eastern Europe.
While the recent decline in the dollar throughout May, falling below parity, may help to stimulate demand, it will be the buyer demand in overseas markets that will determine where the skins market will go for the remainder of 2012.
* Lamb skin max, 16.1–20kg cwt, free of vegetable matter, 1–2 inch length
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