Rising demand fuels rosy outlook

The outlook for the sheep industry is positive as a result of increasing demand for wool and sheepmeat.

In a presentation to the Department of Agriculture and Food's Agribusiness Sheep Updates in Perth this week, independent agricultural economist Peter Rowe said the longer-term outlook for sheep was positive despite a recent decline in prices.

"Wool stockpiles are very low, currently under 5 per cent of global use, and when European consumers return, prices will need to go up to ration demand," Mr Rowe said.

"The global sheep flock is not increasing, so supply is not going to increase rapidly."

He said sheep meat prices were expected to recover on the back of an export program initially to the US, where a particularly poor season last year had led to reduced numbers.

"ABARES estimates the United States will increase imports of Australian lamb by 12 per cent this year," he said.

Mr Rowe predicted the European economic malaise would continue into 2013 and see the Western Market Indicator average 1050c/kg through next financial year when it would start to increase again and was budgeting on lamb prices around $4.20/kg over the next two to three years. The positive outlook follows a decline in wool prices by 24 per cent and lamb by 22 per cent after both peaked in June 2011.

"During the first half of 2011, confidence in the global economy returned after the economic crisis, and wool, cotton and synthetics all increased in price as demand, particularly from Europe, grew," Mr Rowe said.

"But then concerns about European financial conditions started to emerge and demand for clothing across all fibres fell away."

Despite the drop, wool prices remain mid-range.

"The Western Market Indicator is currently at 1080c/kg, the 6th percentile, meaning prices have been higher 39 per cent over the last five years," Mr Rowe said.

Lamb and mutton prices were impacted by a fall in demand from Europe and competition from New Zealand lamb into other export markets.

Department sheep leader Steve Gherardi said the variety of export markets available for sheep meat should provide confidence for the industry.

"The countries which sheep meat is exported to are doing well economically and we expect to see demand for sheep meat to stay up over the next year," he said.