QMS Market Commentary: Wet Weather Contributing to Prime Lamb Market Roller Coaster

The Scottish prime lamb market has been something of a roller coaster over the past two months. Market returns were particularly disappointing during May but recovered strongly through June to a point where they were just ahead of last year. 

However, the first week of July saw prices fall sharply and dip back below last year’s levels before recovering slightly in the second week.  With the Muslim holy month of Ramadan starting on 20th July there is some prospect of demand remaining reasonable in the short term.

“The variability in the market is making it difficult to determine the short to medium term prospects for lamb producers,” said Stuart Ashworth, Quality Meat Scotland’s Head of Economics Services.

“A number of elements are influencing the market. New season lambs have been slow to arrive on the market, perhaps not surprising given the impact of poor weather on growth rates.  However, by the end of June the numbers coming forward were slightly ahead of last year and although auction volumes dipped in early July the total lamb kill remains slightly ahead of last year.”

As volumes built and major retailers could be assured of supplies prices improved, said Mr Ashworth observing, however, that it is normal for prices to slide during July as volumes build even more.  Nevertheless, he said, it looks like this week’s price has recovered to a level very similar to this time last year.

“Evidence from price reporting abattoirs does suggest that the weather has taken its toll on lamb quality and the proportion of lambs grading R3L or better is a couple of percentage points lower than last year.  Meanwhile the price for R2 and R3L lambs has not fallen as far behind last year as R3H or R4L lambs – in other words the lambs that more closely meet the market requirements have retained their value better than out of specification lambs,” said Mr Ashworth.

The UK market is currently relatively well supplied with lambs and so too is Ireland.  Lamb slaughterings in Ireland are running ahead of last year by about 10%, perhaps not surprising given the increase in breeding ewe numbers reported in the Irish December census.  Furthermore, there are reports of more plentiful supplies of Spanish and Portuguese lambs on the French market.  So not only is the UK market reasonably well supplied with lamb, so too is our main export market.  Furthermore, French producers are currently receiving 2.5% less than they did last year while Spanish producers are getting 4-5% less making the export market much tougher even before unfavourable Sterling exchange rate movements are considered.

 A further complication on the lamb market is the influence of skin values which, said Mr Ashworth, have taken a tumble over the past quarter.  “Sheepskin prices have fallen globally and while Scottish sheepskin prices may not have fallen the 60% reported in Australia they are certainly well below year earlier levels.  While the general global economic gloom continues sheepskin prices are not expected to recover,” he observed.

Turning to the demand side of the equation the latest UK market research information suggests some modest improvement in consumer demand for lamb.  Although over the past year household purchases of lamb have fallen in volume terms, data for the most recent four weeks into early June showed a modest increase in volume.  All of that increase was the result of increased purchases of leg roasts which may reflect weather conditions or some heavy discounting to clear the market, but it is a start. 

“The average retail price of lamb during May was reported around 6.7% higher than 12 months ago while the average beef retail price increased 16%. Lamb may remain expensive but it’s relative price position against beef has improved.  The challenge for the industry is to build on this modest improvement in consumer demand so as to sustain producer prices at current levels in the face of a slightly better supplied market,” said Mr Ashworth.