08 Sep 2015

Lamb prices to remain steady despite high slaughter

  • NAB expects AUD to drop to 68 cents by 2016.
  • NAB expects the next move in official interest rates will be up, but not until late 2016, and with a lower end point for the official cash rate of 3.5 per cent.
  • NAB forecasts lamb prices to increase moderately on average in 2015-16 – up 1.2 per cent (AUD) for the period.
  • NAB forecasts a 1.0% decline in lamb production in 2015-16.

Lamb prices are well ahead of the same time last year and are expected to average 1.2 per cent higher this financial year compared with last year, at 523.75c/kg, despite spring lamb production in the next month or so placing pressure on prices in the short term.

National Australia Bank (NAB) Agribusiness Head of Victoria and Tasmania Neil Findlay says the latest Commodity In Focus report shows that the Eastern States Trade Lamb Indicator is approaching its highest levels since 2011, and has remained steady during the winter months.

“Moderately higher prices have been sustained even as supply has increased over the past year, with slaughter rates elevated for much of 2014 and into early 2015, especially from Victoria,” Mr Findlay said.

“However, we have held the view for some time that the current higher slaughter levels, underpinned by increasing turn off rates as a proportion of total flock, are not sustainable.

“Recent data lends support to this view, as slaughter has begun to contract faster than normal in Victoria ahead of the spring peak and this will help provide support to prices over the remainder of the financial year.

“We are still around a month away from the major spring flush of lambs and we think nationally supply will be slightly weaker, with a forecast 1.0 per cent decline in production in 2015-16.”

High prices are seen as the primary drivers of a continuing fall in domestic lamb consumption. However, exports of processed lamb have been generally on the rise over the past five years and have been the destination for much of the additional lamb supply.

The ongoing weakness in the Australian dollar (AUD) will benefits export values. NAB forecast the AUD to bottom out around 68 US cents by early 2016, although the expectation for the AUD to drop to 70 US cents by year end has materialised a little earlier than predicted, suggesting further scope for downside risk.

On interest rates, NAB still sees the Reserve Bank as having finished cutting, with the next move in rates as up but not until late 2016, and with a lower end point for the official cash rate of 3.5 per cent.

Agribusiness View provides the latest insights from NAB Agribusiness. Visit nab.com.au/agriview to sign up as well as to find the contact details for your nearest NAB Agribusiness Manager.

 Important Note: Any advice in this editorial has been prepared without taking into account your objectives, financial situation and needs. Before acting on this advice, you should consider its appropriateness to you.

About NAB Agribusiness

National Australia Bank (NAB) Agribusiness is Australia’s leading Agribusiness Bank and has been supporting Australian farmers for more than 150 years. NAB employs more than 600 agribusiness banking specialists in 110 metropolitan and regional locations Australia-wide. With their local and industry knowledge, our Agribusiness team understand the unique financial and environmental needs of farmers and businesses beyond the farm gate – whether they provide inputs into agriculture or process, distribute or market primary produce. NAB also has a specialist Agribusiness Asia Desk to help Australian farmers make the most of the rapid growth in demand for high quality produce in Asia. We deliver a flexible range of agribusiness products and services by listening to and working with our customers, to tailor the best packages and advice for their businesses. For further information please visit www.nab.com.au/agribusiness.

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