Producers pin hops on spring rainfall

WA producers who have stuck with sheep are poised to reap the rewards of high prices and strong demand for sheepmeat, according to industry analysts.

Strong demand in Australian saleyards is an understatement when it comes to the combined pull of domestic and export processors, added to this is demand from re-stockers who are all fighting for the same pool of Australian stock.

Meat and Livestock Australia (MLA) has reported that lamb prices are expected to remain historically strong for the remainder of the year but will continue to ease from the record highs of early 2011.

After a very tough season for WA producers in 2010 and drought conditions in early 2011, winter rainfall has vastly improved the outlook for lamb production during the remainder of the year; however, spring rainfall still has a big part to play to ensure further liquidation of the WA flock does not occur.

MLA sheepmeat analyst Robert Barker said lamb turnoff in the second half of 2011 would continue to be dependent on rainfall, particularly in September and October.

"When the drought broke in the eastern states, lamb turnoff declined sharply. A similar trend is expected in WA, with spring rainfall the major determinant," he said.

Mr Barker said that while there had been reports out of areas in the South West that some regions had been receiving average rain, pasture density remained low and more rainfall was needed before WA's drought was broken and the threat of another year of flock liquidation was over.

Mr Barker said lambs available for processing had declined in WA because of recent rainfall across south-western WA through May and June, and this combined with WA's major flock liquidation in the 12 months to June 2011 - in which 1.3 million head of sheep and lambs were trucked to the eastern states - had the potential for lamb supply to remain tight for the rest of 2011.

The length of WA's dry season meant it was also unlikely any flock rebuilding would begin this year.

"Given the prolonged drought, the flock in WA is likely to fall again in June 2012, and then stabilise in 2013 before a gradual rebuild to 2015," Mr Barker said.

On a positive note, average WA lamb prices throughout 2011 were likely to remain above 2010 levels with current prices around 80c/kg higher than the same time last year.

Mr Barker said that while prices might ease as new season lambs enter the market, WA's average lamb price was likely to remain above 2010 levels.

"Once the drought breaks in WA, it is likely that supplies will tighten further and push prices up," Mr Barker said. "As supplies rise in line with flock rebuilding in the longer term prices will be pressured, although still remain favourable."

Mr Barker warned that to ensure the entire lamb supply chain remained profitable, sustainable prices were needed across the east and west.

Traditionally, WA lamb prices have been below eastern states prices.

Mr Barker said WA's supply situation would be the main factor of this trend, particularly if supplies in WA remained tight at the same time as eastern states production expanded in line with the flock.

He said market indicators in the eastern states suggested that the season would be later than normal, with more lambs coming forward at the end of 2011 than at the start of spring, placing pressure on prices later in the year.

Despite this pressure, prices are expected to remain at more sustainable levels for the entire industry in the next 12 months than was seen in the past financial year.

In line with national trends, WA sheep slaughter is also expected to remain well below last year in the second half of 2011.

Mr Barker said that in the first six months of 2011, sheep slaughter fell 27 per cent year-on-year with reduced sheep availability due to a number of years of below average conditions.

Mr Barker said for similar reasons, lamb slaughter in WA was expected to be constrained to lower levels than 2010.

WA lamb carcase weights were not expected to change compared with previous years.

Mr Barker said WA lamb carcase weights had traditionally been lower than the national average and this was again likely to be the case in 2011.

Despite lower production in the first half of 2011, WA lamb exports have been higher for the first seven months of 2011 at 11,517 tonnes shipped weight (swt).

"For the first seven months of 2011, WA's biggest lamb export market was the Middle East, which took 4342t swt, or 38 per cent of total WA lamb exports," Mr Barker said.

"The largest individual market was the United Arab Emirates, taking 2111t swt."

Mr Barker said the season and in particular rainfall during the rest of 2011 would have the main influence on production and by extension export levels during the remainder of the year.

He said that when it came to domestic consumption nationwide, limited supply and high prices had resulted in lower volumes sold through Australian retail and foodservice outlets.

"Strong interest for lamb in overseas markets has also pressured supplies domestically - if production is lower, but exports have increased, it clearly means that there has been less to sell to Australian consumers," Mr Barker said.