Sheep
Prices and Supplies
After falling at the end of June, lamb prices rose steadily for four weeks.
They then slipped back into August, and traded at their lowest in nine months, before picking up once again.
Auction and deadweight prices have been trading at a slight year-on-year premium since mid-July.
One factor that has been placing some downwards pressure on prices, namely quality, has now become less of a factor.
Since the start of the 2012/13 season 70% of lambs have achieved at least an R3L grade compared with 74% in the same period last year.
However, over the past six weeks this deficit has halved to an average of two percentage points.
After surpassing year earlier levels by 5% during May, lamb throughputs at UK abattoirs in June were down 7% year-on-year.
However, when heavier carcase weights are taken into consideration, UK lamb production volumes were nearly 3% higher in the first two months of the 2012/13 season than in the corresponding period of the 2011/12 season, and up by 0.6% in H1.
In Scotland, abattoir throughputs were up 16% year-on-year for a second month in June.
Though throughputs were slightly behind 2011 levels during H1, heavier carcase weights and the considerable recent expansion in production pushed the volume of lamb produced by Scottish abattoirs up 2% year-on-year.
The most recent Kantar data indicates that the downwards trend that had been present in lamb sales for around eighteen months has now reversed.
Purchased volumes jumped by 27% in the four weeks to July 8 when compared with the same period last year.
With expenditure on lamb rising to a lesser extent (14%), there is the strong implication that falling retail prices and discounting have driven consumption.
Of the individual cuts, the greatest gains in consumption were made by roasting joints, while mince was the only category to show a decline.
Despite the Islamic festival of Ramadan, cull ewe prices continued to come under pressure through July and then dipped further in the first half of August.
At the start of August, prices have averaged £59 a head; their cheapest since October, and 18% lower than a year ago.
June saw one of the smallest monthly ewe kills in UK abattoirs on record; up only slightly on the previous month during which slaughterings had been at their lowest since March 2004. Furthermore, during H1 2012, volumes trailed year earlier levels by nearly 11%.
Since the decline is greater than that of the contraction in the ewe flock it suggests that producers may have begun to rebuild their flocks.
In July, the average price of a heavy lamb in the EU increased by nearly 1% to 511.4c/kg dwt.
This meant that at the end of the month prices were 9% higher than a year earlier.
This average figure, however, masked a wide range of price movements.
While Sweden has experienced the largest gains of more than 23%, increases were closer to the EU average in the Netherlands, Germany and Belgium.
By contrast, lambs in Spain were just 1% more expensive, while producer prices in France, Ireland, Romania and Austria were approximately 1% lower on the year.
In Sterling terms, average prices are down by 1.5% year-on-year.
The Euro fell to a three-and-a-half-year low against Sterling in July and has been trading at between 78-79p in recent weeks.
This is around 10% weaker than twelve months ago.
As a result, British ex-farm lamb prices have increased significantly when quoted in Euro terms.
Since more than a third of UK production is exported, this will have inevitably placed considerable pressure on prices paid to the producer.
Although the trade data runs at a lag, the strengthening of Sterling earlier in the year does not appear to have dampened the lamb trade.
Up to the end of May, UK exports grew by 2% year-on-year to reach 35,300t, and during May, deliveries exceeded year earlier volumes by 5%. 34% of domestic production was shipped overseas in the first five months of 2012, up from 33% a year ago.
Of the major EU customers, Belgium, Germany and Ireland have purchased significantly more lamb from the UK thus far in 2012; increasing by a respective 28.5%, 22% and 18%.
These gains were able to offset reduced trade with France and Italy.
France sourced 5% less UK lamb than last year, purchasing 19,300t over the five-month period, while Italy bought 800t, down from 1,000t a year earlier.
Strong growth into some non-EU markets also helped push total exports higher.
Deliveries to Norway rose by a factor of 19 to more than 550t, while shipments to Ghana have increased by a factor of 10 to reach close to 250t.
Strong growth into South East Asia continued with exports up to 2,800t from just over 1,000t in the January to May period of 2011.
The import market changed course in May.
Though total monthly imports remained below year earlier levels, they were only marginally down, and the UK’s largest supplier, New Zealand, delivered more lamb than a year earlier for the first time since November.
The likely contributor is falling lamb prices at the global level which have begun to offer consumers the perception of better value for money.
For example, May Retail Prices Index data showed that the average cost of imported leg of lamb had fallen 1.5% year-on-year.
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In Ireland there has been a large increase in sheepmeat production so far this year. 1.06m lambs were killed at export meat plants during the first seven months, an increase of 71,000 head (7%) year-on-year.
Though an 11% fall in slaughterings of mature sheep has offset some of these gains, overall sheep throughputs are still up by 5% on the year at 1.19m head.
However, growth slowed during July as monthly volumes ran 3% ahead of year earlier levels.
New Zealand sheep farmers have been warned to expect much lower returns from the market in the 2012/13 year.
Beef and Lamb New Zealand economist, Rob Davison, has forecast that export lambs will trade around 95 New Zealand Dollars per head (NZD) (£49) in the coming year, significantly below the average price achieved in the 2011/12 year of 113.5 NZD (£57.60). An increased lamb crop has helped push down farmgate prices in New Zealand this year.
A rising New Zealand Dollar is also likely to have placed some downwards pressure on prices, as it has raised the cost of New Zealand lamb in the global marketplace.
China continued to offer Australia and New Zealand a growing market for low value cuts.
During H1 2012, Australia shipped 20% more sheepmeat to China and New Zealand increased deliveries by 45%.
Compared with two years ago both nations have more than doubled their exports to China.
At current exchange rates the trade was worth around £1,800/t to Australia and £2,300 to New Zealand exporters; less than half the value of their exports to the EU.
During July, Australia continued to see strong export growth into China, but deliveries to other countries in South East Asia, such as Malaysia, Hong Kong and Taiwan, declined sharply.
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Source: Argentine Beef Packers S.A.
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