Meat & Livestock Australia's Sheep Industry Projections report shows positive signs

In the report which was released in February, MLA said overall Australia's sheep industry was in an exciting position of continued growth and development, with local production and the flock forecast set to rise, while global demand for high quality sheepmeat in established and emerging markets continues.

"The industry's ability to continue to deliver high quality protein and be a world-leading producer will define 2023 as a positive and optimistic year," MLA said.

"Over the next 12 months, the continuation of Australia's flock growth will translate into higher slaughter volumes across both lambs and mutton, resulting in solid increases in exports.

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"This trend will be a closely followed development throughout 2023 for the Australian sheepmeat industry.

"Internationally, the demise of the New Zealand flock due to enterprise competition with dairy presents Australia a unique opportunity to capitalise and increase its market position as the world's largest exporter of sheepmeat.

"In the United Kingdom, declining New Zealand imports and a heavy reliance on United Kingdom exports entering European Union nations may support Australia's position to expand exports into the UK once the Australia-UK Free Trade Agreement comes into effect later this year.

"In a global space, the opportunity for the Australian sheepmeat industry to continue to capture market share, relative to its competitors, also offers long term optimism.

"The Australian sheep industry has placed itself in an exceptionally exciting position for 2023 and beyond."

MLA has forecast in the report that in 2023 Australia's sheep flock will grow a further 3.6 per cent or 2.75 million head to reach its highest level since 2007 at 78.75m head, while in 2024 the MLA is forecasting the national flock will increase a further 1pc to 79.5m head.

It said this growth across the country was due to factors including historically large numbers of breeding ewes in the system and high marking rates.

With the Australian sheep flock forecast to increase in 2023 it is not surprising that both lamb and sheep slaughter numbers and lamb and mutton exports are being forecast to rise by MLA.

MLA is predicting lamb slaughter numbers to reach 22.6m in 2023 as a result of strong marking rates and a rise in breeding ewes, up 2.7pc (595,000) year-on-year, while it expects sheep slaughter will lift by 24pc (1.46m) to reach 7.6m head.

Based on feedback from its most recent Sheep Producer Intentions Survey, MLA said lambs released into the market after being held back last year will lead to an increase in lamb slaughter rates for the first half of 2023, while it stated sheep slaughter is set to increase significantly over the coming year as the current breeding ewe base grows beyond 2016 levels and producers remove non-performing females and introduce new genetics to their breeding flock.

Looking ahead to 2024, MLA is forecasting a record year for lamb slaughter with the volume reaching 23.2m head which would be 5pc higher than the 10-year average.

For sheep slaughter numbers in 2024 and 2025, MLA is forecasting further rises to 8.46m and 9.48m respectively.

The 2025 slaughter volumes would represent a 55pc increase on 2022 volumes.

On the back of growing lamb and sheep slaughter volumes and carcase weights for both sheep and lambs remaining similar to 2022 levels, MLA is forecasting lamb and sheep production to increase in 2023.

MLA is forecasting lamb production is set to break a new record in 2023, reaching 569,000 tonnes, beating the previous record set last year.

It said this record will be achieved by historically high carcase weights and strong improvements in slaughter.

If this lamb production record is achieved it will represent a 3.5pc rise on 2022 estimates and will be 15pc higher than the 10-year average.

In 2024 and 2025 MLA is also expecting lamb production to increase further to 577,000t and 585,000t respectively and it expects these record production levels will significantly enhance Australia's export volumes, which it forecast would hit record levels for the three years from 2023.

Sheep production will also strongly improve, according to MLA, as slaughter volumes lift.

It is forecasting sheep production will reach 193,000t in 2023, which will represent a 25pc year-on-year increase.

In 2024 it is forecast to rise to 214,000t, which would reflect an 11pc increase on the 10-year average, while by 2025 it is forecast to reach 237,000t, the highest volume since 2014.

Global demand for Australia's lamb and sheep exports is also expected to rise, which is news for producers.

Despite facing turbulent global conditions throughout 2022, MLA business analyst Tim Jackson said Australian lamb and mutton exports were up in 2022 compared to 2021.

"Lamb exports increased 7pc on 2021 levels to the largest export figure on record of 284,257t in 2022 as was the $3.4 billion in revenue garnered for these exports," Mr Jackson said.

Again in 2022 the United States and China remained the two largest export markets for Australian lamb, with exports to the US growing by 6pc to 75,453t and China falling 6pc to 52,151t.

Mr Jackson said the two markets combined took 45pc of total lamb exports and represent huge opportunities in the future, as lamb consumption is still relatively low, especially in the US.

"Another key insight into Australian lamb exports in 2022 was the increasing diversity of export locations," Mr Jackson said.

South Korea and Papua New Guinea were the third and fourth largest export locations for the year, and exports grew by 60pc and 68pc respectively to 22,901t and 21,901t to these locations.

"At the same time, exports to smaller markets like Fiji, Switzerland and Ghana recorded a more than 15pc lamb export increase and important beef markets like Japan are also getting a taste for Australian lamb."

Lamb prices were also strong for the year, peaking at $12.17 in June and averaging $11.53 for the year-to-October.

The start of 2023 has also shown a positive trend for lamb exports with export figures for the first quarter (Q1) up on 2022 levels and the month of April also showing a small increase.

Mr Jackson said lamb exports for Q1 were 6pc higher than Q1 2022 while in April lamb exports were up 2pc on 2022 levels.

"In the Q1 exports grew strongly to China, South Korea and the Middle East North Africa (MENA) region, while declining in South-East Asia, the US, and the EU-27/United Kingdom region," Mr Jackson said.

"Lamb exports to China for Q1 were up 29pc on last year while exports to South Korea were up 47pc for the first three months making it the third largest export destination for Australian lamb after the US and China."

When it came to mutton exports in 2022 they were similar to lamb, growing by 2pc for the year to 144,005t.

Mr Jackson said the main difference was that exports to the five largest markets fell by 4pc, mostly due to US exports falling by 23pc, while other exports rose by 25pc, representing a major diversification of export markets.

"The top five markets still account for more than 75pc of Australia's exports, but growth in varied markets could make Australian exports more resilient to external shocks in the future."

Mutton exports have also had a positive start in 2023 and in April rose a massive 48pc year-on-year to 15,772t.

Mr Jackson said mutton exports to China nearly doubled in April to 7493t, while exports to South East Asia rose by 7pc to 2638t and exports to MENA rose by 31pc to 2403t.

"The increase in mutton exports to China was the largest in absolute terms, but the largest increase in relative terms was to Mexico, which recorded a 992pc increase year-on-year to 524t, making it the eighth-largest mutton market for the month of April," Mr Jackson said.

On the wool front while the market is back on 12 months ago there is positive news coming out of China, the number one destination for Australian wool.

Australian Wool Innovation chief executive officer John Roberts travelled to China in April and met with many of the country's major wool processors.

From his visits Mr Roberts said all major processors were reporting they would be expanding their processing facilities and this optimism is also reflected in many of the second-tier processors, which are also looking to expand or have already done so during the COVID-19 pandemic.

"Overall the expansion in plant capacity is incredible, a few years ago only two or three top making plants had the capacity to process more than 10 million kilograms; that number has increased significantly now," Mr Roberts said.

"The fact that these factories are expanding is a good sign, the companies behind them don't just build on a hunch, they have done their research.

"They understand that the Chinese consumer wants a naturally sourced fibre and they're getting a similar message from their overseas consumers too, particularly with the rising spending power of Gen. Z and they are emphasising the natural biodegradable qualities of wool because it is a strong selling point."

The Chinese Wool Textile Association has also stated that more Chinese consumers are going to want to wear wool.

Mr Roberts also visited India in December for trade talks and found some the key mills there were expanding.

Last week the Western Market Indicator sat at 1402 cent per kilogram clean, down 113c/kg on the same sale last year.

At last week's prices a bale of 17 micron wool according to the Australian Wool Exchange's (AWEX) weekly wool market report is worth $2594, while a 19 micron bale is worth $1869 and a 21 micron bale $1660.

In contrast, last year in the same weekly report AWEX had a 17 micron bale valued at $3263, a 19 micron at $2089 and a 21 micron at $1619 while two years ago they were worth $2738, $1928 and $1504 respectively.