Sheep meat: March quarter 2022

The gross value of production of the sheep meat industry is forecast to break a new record of over $5 billion in 2021–22, supported by record high prices and rising sheep meat production.

Global inflation is expected to ease by the middle of 2022 and global incomes are expected to rise. As a result, lamb prices are expected to rise by 5%, averaging 934 cents per kg in 2022–23. Sheep prices are expected to average 678 cents per kg in the same year.

Prices could rise more quickly if global inflation remains high (see the Agricultural Overview for a full explanation of the scenarios). In this scenario, inflation is expected to come down in 2024–25. This longer period of inflation would support sheep meat prices in the short term to 2023–24 but weigh on prices over the medium term to 2026–27.

By 2026–27, the value of the sheep meat industry is expected to range between $5.6 billion and $6.1 billion depending on the path of global economic recovery (Figure 1.1).

f ABARES forecast. s ABARES estimate. z ABARES projection.
Sources: ABARES; ABS; Meat & Livestock Australia

The value of Australian sheep meat exports is forecast to reach $4.4 billion in 2021–22. This is being driven by strong sheep meat exports to the United States. Between July and November 2021, exports to the United States were 45% higher than the same time in 2020. In the United States, meat prices have been rising faster than general price inflation and domestic sheep meat production has been relatively low. These two factors have been driving up the value of Australia’s sheep meat exports to the country.

Between 2022–23 and 2026–27, the value of Australia’s sheep meat exports is expected to continue rising. By 2026–27, dependent on the scenario, the value of exports is expected to be between $4.6 billion and $5.1 billion.

In the slower economic recovery scenario, meat prices in the US are expected to continue rising faster than general inflation over the next two years. US meat vendors are expected to receive higher returns for their product at the supermarket. This will encourage US meat vendors to pay more for imported meat, such as sheep meat from Australia. Meanwhile, in the Middle East higher oil prices will lead to rising incomes in the short term. This will allow the region’s sheep meat demand to recover more quickly.

However, strong global inflation is not assumed to last forever. In the slower economic recovery scenario, US sheep meat demand would start to ease around 2024–25 as central bank measures to control inflation weigh on economic growth (see the Economic overview). Also, consumer incomes in major export markets are expected to grow more slowly in this scenario. Consumers in these markets will therefore have less money to spend on Australian sheep meat by the end of the outlook period. As a result, the value of Australian sheep meat exports is expected to be about $500 million lower by 2026–27 in the slower economic recovery scenario.

In 2021–22, lamb saleyard prices are expected to increase 14% to 893 cents per kg, whilst sheep saleyard prices are expected to rise 7% to 648 cents per kg.

Lamb prices in the current financial year have been supported by strong export demand from the United States.

Lamb and sheep prices are expected to rise over the short-term to 2022–23 due to strong export demand in the United States (Figure 1.2). If the pace of the global economic recovery is slow, prices are expected to continue increasing until 2023–24, as higher global inflation supports global demand for sheep meat.

However, over the medium term to 2026–27, domestic lamb and sheep prices will also be influenced by seasonal conditions. Although the timing of a dry year is uncertain, the occurrence of drought-like conditions is expected to weigh on saleyard prices in both scenarios. (see the Seasonal climate overview for more information).

f ABARES forecast. s ABARES estimate. z ABARES projection.
Sources: ABARES; Meat & Livestock Australia.

In 2021–22, the quantity of sheep meat produced in Australia is expected to rise by 5% to around 690,000 tonnes, due to rising numbers of sheep and lambs slaughtered. Lamb slaughter is expected to rise by 1% to 21.0 million head in 2021–22, while sheep slaughter is expected to rise by 11% to 6.0 million head (Figure 1.3). Slaughter is increasing due to ongoing flock rebuilding, which means more lambs and sheep are available for slaughter than last year. In 2021–22, the increase in sheep meat production is expected to lead to higher export volumes, which are forecast to rise by 12% to around 480,000 tonnes.

Lamb and sheep slaughter forecasts are not expected to be significantly impacted by the outbreak of the Omicron variant of COVID–19 in Australia. Due to the outbreak, many workers in the sheep meat processing industry have been required to self-isolate after testing positive for the virus. The resulting processing constraints weighed on sheep and lamb slaughter in January 2022. Lamb slaughter fell by 20% year-on-year in January 2022, while sheep slaughter fell by 32%. However, lamb and sheep slaughter recovered to pre-Omicron levels in February 2022.

Sheep meat production is expected to rise over the medium term to 2026–27, in line with rising slaughter, reaching around 750,000 to 780,000 tonnes. Lamb slaughter is expected to be around 21.7 million to 22.7 million head by 2026–27, while sheep slaughter is expected to be around 7.2 million to 7.9 million head. Slaughter is expected to rise more quickly in the slower economic recovery scenario than in the faster economic recovery scenario, since Australian sheep meat producers are expected to take advantage of high global prices in the short term. However, higher slaughter will lead to a decline in the Australian sheep flock size. Therefore, by 2026–27 slaughter is higher in the faster economic recovery scenario as there are more sheep available.

In both scenarios, sheep meat production is expected to be constrained by the small Australian sheep flock. The size of the Australian sheep flock has fallen from 72 million sheep in June 2017 to 63.5 million sheep in June 2020. By 2026–27, the flock size is expected to recover to 75.1 million sheep. However, it could be as low as 68.5 million sheep in the slower economic recovery scenario due to higher slaughter rates early in the outlook period.

f ABARES forecast. s ABARES estimate. z ABARES projection.
Source: ABARES; ABS; Meat & Livestock Australia

Over the next five years, sheep meat export volumes are expected to rise in line with sheep meat production, reaching around 500,000 to 530,000 tonnes by 2026–27.

China and the United States are Australia’s largest sheep meat export markets, in which we compete with New Zealand. New Zealand is the largest exporter of sheep meat to China and the second largest exporter of sheep meat to the United States.

According to New Zealand’s Ministry of Primary Industries, New Zealand’s sheep meat export volume is forecast to fall in 2021–22 due to lower production, before falling again in 2022–23. This is likely to support global demand for Australian sheep meat in the short term to 2023–24 in both scenarios.

Exports to all major markets are expected to rise in the short term. Sheep meat exports to China are forecast to increase in 2021–22, despite the significant increase in Chinese pork production. Sheep meat demand in China is being driven by increasing incomes and urbanisation. These factors suggest China’s demand for sheep meat will continue to rise through the outlook period, even as China continues to recover from African swine fever.

The value of Australia’s sheep meat exports to the United States has reached record highs in recent months. Low sheep meat production in the United States has supported Australia’s export volumes to the country. Meanwhile, high meat price inflation in the United States has encouraged the country’s importers to pay high prices for Australian sheep meat. High inflation in the US is expected to continue until at least the middle of 2022. Inflation could continue until 2023–24 if the global economic recovery is slowed. More persistent inflation would encourage US importers to continue paying high prices for Australian sheep meat. However, US export prices would eventually ease over the medium term to 2026–27, as inflation is brought under control.

Australia’s sheep meat exports to the Middle East have been subdued since June 2020, due to the ongoing effects of the COVID–19 pandemic. Pandemic-related travel restrictions and depressed oil prices weighed on incomes in oil-exporting Middle Eastern countries in 2020. Oil prices have since returned to pre-pandemic levels. Therefore, Australian sheep meat exports to the Middle East are expected to increase over the medium term to 2026–27 as incomes in the region recover.

The live sheep export industry has made considerable gains in animal welfare

Animal welfare concerns have previously caused social licence issues for the live sheep industry.

In recent years, the Australian Government has introduced regulations to reduce the mortality of live sheep onboard ships. These include increasing the minimum amount of space allocated to each sheep, as well as prohibiting live sheep exports to the Northern Hemisphere during the hottest part of the Northern Hemisphere summer (June to mid-September).

These regulations have helped to reduce the live sheep mortality rate from 0.8% in 2016 (1 mortality per 125 sheep loaded) to approximately 0.2% for the calendar year 2021 (1 mortality per 500 sheep loaded). Historically, the highest monthly mortality rates occurred during voyages departing Australia between June to September. As a result of the Northern Hemisphere summer prohibition, mortality rates fell to zero in June, July, and August 2021.

These regulations could renew public confidence in the live sheep industry, which would in turn provide live sheep exporters with greater certainty to grow their businesses. Renewed confidence in the industry would also benefit farmers in Western Australia, where most live sheep are exported. In 2020–21, Western Australia contributed over 90% of Australia’s live sheep exports, but only 18% of the country’s sheep meat exports.