Lamb prices cool as the volume of lambs on the market increases

Producer prices have fallen sharply in the past month but with the domestic market slightly better supplied with sheepmeat a period of stabilization looks on the cards for the coming six months.

According to Stuart Ashworth, Head of Economics Services with Quality Meat Scotland, the French, Spanish, Portuguese and German flocks are expected to continue declining in 2013.

“Consequently opportunities will continue to exist in mainland European markets. Alongside this the improving competitiveness of lamb on the domestic market, as a result of rising beef and pork prices, will help to stabilise a somewhat better supplied sheepmeat market,” said Mr Ashworth.

However, looking at the shorter-term he said auction prices for prime lambs in Scotland have fallen around 8% in the past month.  Prices in England and Wales have fallen a more modest 3% while deadweight reporting abattoirs have dropped prices 4% in the past month. 

At current levels Scottish auction prices have fallen below the 2010 levels while prices in England and Wales are very similar to those of two years ago and both are well below last year’s prices.

“There are a number of reasons for this fall in prices. When we look at prime lamb slaughterings in GB between June and the end of September we find volumes down 8% on the year. 

“Although we do not have results for a full GB census it is unlikely that the lamb crop is any smaller than last year and so, with fewer lambs killed so far this season, we must see some increase in the short-term and this is beginning to happen as October draws to a close.”

Compared to the beginning of October, auction market volumes have increased by more than 20% while numbers in the deadweight-reporting abattoirs have increased almost 8%.  Nevertheless, when compared to last year auction numbers still trail by 10%. 

“Evidence from price-reporting abattoirs suggests that the quality of lambs has fallen over the past month with 58% grading R3L or better compared to 66% a month ago and 59% a year ago. 

“So, in summary the market is currently better supplied than a month ago, but the quality has fallen. This is perhaps not too much of a surprise given the challenges of producing quality forage this year and the slower growth rates reported by many producers.”

Increased supplies have also been a feature of the Irish market, observed Mr Ashworth, where the volume of lambs reaching Irish abattoirs in recent weeks has been 15 - 25% ahead of last year.  However, prices are down only 2% and have not fallen as sharply in the past month as they have in Scotland. 

However, when quoted in Euro terms Irish prices are currently 10% lower than GB prices adding to the pressure on the Scottish market.  Over the whole of the 2011-2012 marketing year Irish prices averaged 6% lower than GB prices.

Further challenges to the current lamb market have been the strength of Sterling and falling sheepskin prices, observed Mr Ashworth.

“Although it has weakened in the past month, the Pound Euro exchange rate currently stands at around £0.81 to the Euro compared to £0.86 a year ago.  This makes UK lamb less competitive on the European market and indeed the volume of sheepmeat exported to France has fallen behind year earlier levels in recent months.

“The pleasing element has been that some growth has been achieved in lamb exports to other European countries and countries outside the EU.  Nevertheless, export volumes failed to match last year’s levels during July and August.” 

After allowing for imports the net effect of this has been that the domestic market has been slightly better supplied than last year.  As a result, retail prices for lamb have moved little over the past year, compared to a 9% increase in beef retail prices and a 3% increase for pork. 

Sheepskin prices have cooled substantially over the past year with export data showing a decline of almost 40% in the value of sheepskins, inevitably putting pressure on farm gate prices.

“It seems unlikely that these market pressures will ease in the medium term.  Certainly there will be more GB lambs to market over the remainder of marketing year but orderly marketing will minimise the market volatility. 

“Similarly, the Irish June census reported 7% more lambs than last year. However, higher kill numbers in Ireland suggest that nearly 60% of this increase has already passed through the system.  Nevertheless, level marketing of the remainder would suggest Irish lamb volumes being 3.5% higher until the end of the season.” 

Latest estimates from New Zealand, said Mr Ashworth, forecast an increase of 6.1% in export lamb production in 2012-2013.  Although the New Zealanders see the European market as challenging it is still higher value than the growth markets of China and the Pacific rim. Consequently, there is likely to be some increased pressure from New Zealand supplies in the first half of 2013.

“Not withstanding the expectation of a slightly increased volume of lamb on the market, the decline in several mainland European ewe flocks, the improved competitiveness of lamb on the domestic market and the continued search for market opportunities outside Europe mean there remain opportunities to exploit to the benefit of producer prices,” added Mr Ashworth.