LOWER lamb production is set to ignite prices in 2017, continuing last year's trend where lamb prices gained traction on records for the fourth consecutive year.
Meat and Livestock Australia (MLA) reported a six per cent fall in sheepmeat production in 2016 which supported lamb indicators exceeding records last set in 2011 following a drought-induced plummet in flock numbers.
Light lambs saleyard indicator, 12-18 kilogram, climbed 24 cents per kilogram year-on-year to average 540c/kg carcase weight which was on par with 2011 levels.
National restocker lambs, 0-18kg, jumped 33c higher year-on-year, although down 19c from where it averaged in 2011, while 16-22kg Merino lambs increased 27c from 2015 and 20c from 2011.
The national trade lamb (18-22kg) indicator for 2016 is 17c higher than 2015 and 11c above the previous calendar year record set in 2011, averaging 561c/kg cwt for the year-to-date.
Heavy lambs over 22kg averaged 565c/kg cwt for 2016, up 17c year-on-year.
This trajectory is set to continue, according to MLA market manager Ben Thomas, who said lamb slaughter was forecast to be down nearly two per cent this year to 22 million head.
"That's on the back of a slightly lower ewe flock, combined with lower marking rates as a result of the flooding through southern Australia," Mr Thomas said.
This number is being buoyed by nearly 500,000 lambs expected to be carried over from last year, due to the extreme wet conditions delaying lambs coming to market.
"There was an expectation of 23m lambs killed in 2016, but because of the numbers held back they're all hitting the market now," he said.
"For the first quarter of 2017 we are expecting the (supply) number to remain high but with lower marking rates coming into play in the middle six months of the year, from June to September, supply will tighten.
"For lamb producers, there has been a string of about four years where the market has been extremely strong and able to resist increase in production, so with a similar (production) level forecast, 2017 should be a good year."
Lamb production is expected to fall 2pc to 492,800t cwt this year, while sheepmeat will decline to 660,000t cwt, following a fall of 6pc last year.
Mr Thomas said prices were forecast to react to the contraction in supply through third quarter, although were unlikely to reach 750c/kg.
"Unless there is was a much greater contraction in supply than what we are anticipating," he said.
Mecardo market analyst Matt Dalgleish thinks otherwise.
"Based off the current slaughter projections, the expected average annual Eastern States Trade Lamb Indicator (ESTLI) for 2017 has been revised up from 590c to 630c/kg cwt," Mr Dalgleish said.
Taking into account historic seasonal movements in the ESTLI that shows the normal variation around the yearly average is plus or minus 20pc, he said a forecast annual average of 630c for the ESTLI would suggest a potential range of 505c to 755c for the 2017 season.
These price forecasts are dependent on stable export and domestic demand, Australian dollar levels and normal seasonal weather conditions.
Mr Dalgeish said tighter domestic supply, reduced lamb supply from Australia's major competitor New Zealand, and firm domestic demand buoyed by high retail beef prices all supported this bullish market view.