Some pain on the horizon for lamb producers
Lamb has been enjoying a stellar run in recent years, with pricing that we wouldn’t dare dream of 10 years ago. With national flock numbers at historic lows, all looked set for a continuation of those prices. Demand is strong, supply compromised due to drought, so it would take something significant to bring us down. Like perhaps… a global pandemic.
With meat processors across Victoria feeling the effects of workforce restrictions over the coming weeks in an attempt to reduce the risks of Covid spread, and the national industry battling to cope with the global upheaval in logistics that has taken place, my confidence in lamb price for 2020 is on the slide.
Even if Victoria can get the Covid situation under control over the next 6 weeks of strict lockdowns, it doesn’t solve the global issue. As peak lamb supply hits the market, there is little chance of being able to physically place the product where the demand is. With more than 50% of Australian lamb exported annually, that will likely have a significant impact upon pricing.
In my opinion it is time to adjust the budgets. Tighten the belt, and prepare yourself for a likely reduction in income. Don’t just sail blindly, optimistically, over the cliff. A month is a long time in this pandemic, and things can change dramatically, both positively and negatively, so any predictions are fraught with danger. Take this as a note of caution rather than a prediction.
If we downgrade expectations, and they are exceeded, then fantastic. Ramp things back up again quickly when the cash is in the bank. But don’t be the one talking to the bank manager about a surprise that you probably should have seen coming.
The good news is that this is not being driven by a true lack of demand. The world still wants lamb, we just might not be able to get it to them. And so, as things return to some form of normality, so too will our enjoyment of good pricing. The question is how long will these interruptions last, and in that time, how much will the national flock rebuild?
The longer this Covid influence lasts, which could be years, the more opportunity the national flock will have to recover from the recent drought impacts. With much of our record pricing having been driven by a lack of supply, we must expect that at some point, increasing lamb numbers will also have a softening influence on pricing. Again the question is “how long will it take?”
One final influence in all of this is the wool market. Having found a new way to frustrate producers, there are many people that I am speaking to who have had enough. This year’s dramatic fall in wool prices was the "straw that broke the camels back". While they may keep a foot in the wool camp, they are determined to push across further into lamb, where demand has been sustained and reliable. If this is any reflection of the rest of the merino industry, then lamb supply will increase further through the changing of enterprises. This is a much quicker transition than flock rebuilding, and may have more immediate impacts on lamb prices as well.
We know that when prices are tracking at the 99th percentile, there is really only one way for them to go, and that is down. We just didn’t expect it to be as the result of a Global Pandemic. So how low will they go? Maybe out of bravery or stupidity, I will throw out a number. My guess is possibly around the $5/kg mark. But, it is not a prediction I make with any confidence, and i really don't think anyone could in this rapidly changing landscape.
What does your budget look like if that happens though? Thinking about it now, could save you from some pain later in the year. If there are ever going to be surprises, lets make them good ones, not bad ones!