16th February 2018

Sheepmeat Trade Starts 2018 on Firm Footing

The start of 2018 has seen farmgate process for prime hoggs increase, unlike early 2017, when prime hogg prices flatlined throughout the first quarter of the year.

Having opened the year at 178p/kg lwt, prices reached 204p/kg by the second week of February with the upturn in the sheep despite 7.5% more hoggs being sold at Scottish auctions in the four weeks to mid-February than in the same period last year.

This reflects a higher hogg carryover into 2018, which was the result of an increased lamb crop in the spring of 2017, coupled with lower slaughterings in the June to December period. 

With the UK exporting nearly a third of sheepmeat production in recent years, while importing around 37% of total market supply, trade is a principal factor to consider, said Iain Macdonald, Senior Economic Analyst, Quality Meat Scotland.

“Rising farmgate prices in New Zealand have made its sheepmeat more expensive than in the past, raising the cost of importing it into the UK.  As a result, import volumes from NZ fell sharply in 2017 and retail prices of NZ lamb rose sharply in the second half of the year,” said Mr Macdonald.

Meanwhile, on the export side, UK traders managed to grow shipments, helped by a favourable exchange rate.  The key French market was relatively stable in 2017, a positive result for UK exporters given a long-term decline in French sheepmeat consumption but a flat trend in production in recent years. Rising consumer confidence in other EU countries underpinned export growth with Belgium and Germany particularly strong markets in 2017. 

In Scotland, Easter is more important to the sheep trade than in the rest of the UK due to the later lambing and arrival of prime sheep on to the market.  Easter Sunday is two weeks earlier this year, falling on the first day of April. As a result, processors will be looking to secure supplies in the second half of March. 

The Islamic calendar moves around two weeks forward each year, but unfortunately for many Scottish sheep farmers, this means that Ramadan will be too early in the 2018/19 season.  Ramadan 2018 runs from mid-May to mid-June, meaning that demand is likely to peak while relatively few Scottish new season lambs are reaching the market.  However, Scottish auction volumes have usually caught up by August and the important Eid al-Adha festival falls on August 21, indicating that processing demand will spike in mid-August.

“In terms of overall supply for the 2018/19 season, if the trend of recent years has continued, there may have been an increased number of ewes put to the tup last autumn, a scenario supported by a fall in ewe slaughterings last autumn,” said Mr Macdonald.

However, a cold, wet winter in many areas of Scotland may mean that last year’s record lambing ratio will be difficult to repeat.  On the import side, New Zealand is estimated to have a 2% larger lamb crop, but firm farmgate prices are forecast to boost the retention rate resulting in no overall increase in availability for slaughter.  With the sterling exchange rate likely to remain weak and the EU economy growing strongly, export demand is likely to hold firm.

In summary, hogg prices have opened 2018 on a high as falling imports but rising exports have allowed the market to absorb increased domestic supply. 

This year demand is likely to peak in mid-to-late March ahead of Easter, then mid-May to mid-June for Ramadan and early-to-mid August ahead of Eid al-Adha. 

Looking further forward, said Mr Macdonald, there is much uncertainty over the impact of Brexit on trade and farm support and the pattern of food consumption is changing.  However, focussing on technical performance and meeting market requirements is likely to make businesses more resilient. 

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