National Australia Bank (NAB) is forecasting a 30 per cent price rise for heavy lambs to 570c/kg this year off the back of tightening domestic supply and booming overseas demand, in the latest monthly Rural Commodities Wrap.

The weakening AUD will further assist exporters, with NAB projecting the dollar to be as low as USD 0.85 by the end of 2014 and 0.83 at the beginning of 2015.

General Manager of NAB Agribusiness, Khan Horne said prices continue to show robust upward momentum despite lamb production shaping up for another record in 2014.

“Prices for producers have been tracking upwards since bottoming out in late 2012 and we expect this trend to continue,” said Mr Horne.

“Export demand prospects for Australian lamb are likely to remain buoyant for some time to come. Exports for the first half of 2014 have been steadily increasing and aren’t yet showing any signs of slowing down.

“Supporting our price forecast is the expectation that supply is likely to tighten this year and into 2015 following two years of drought driven high slaughter rates, combined with poor breeding seasons,” he said.

Lamb exports in 2013 set a new record for the second consecutive year at 214,000 tonnes shipped weight (swt), eclipsing the record of 189,000 in 2012.

“2013 saw a remarkable 41 per cent increase in lamb exports to China. This propelled China past the US to become Australia’s second largest export market for lamb after the Middle East,” said Mr Horne.

Exports and prices have been further assisted by falling production in New Zealand, one of Australia’s key competitors. A dry spring and summer in 2013 led to the lowest lamb drop in the country in 60 years, which suggests exports from the country are also likely to be down in 2014.

Interestingly, as production and exports of Australian lamb boom, domestic lamb consumption has been trending downward since 2009. Last year, lamb consumption by Australians fell by six per cent.

This is despite competition between the major supermarkets, which led to a significant fall in domestic retail prices.

The NAB Rural Commodities Index eased slightly in May, largely in response to moderate declines in the prices of livestock and dairy. The Index declined 1.2 per cent in AUD terms and 1.3 per cent in USD terms. Beef, lamb, dairy and cotton all fell 4 per cent in May in AUD, whereas wheat (+4 per cent), barley (+5 per cent) and sugar (+3 per cent) posted moderate gains.

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