with Jonny Williams, Procurement Officer with Farm Stock Scotland and Iain MacDonald, Senior Economist at QMS
Generally speaking, during the last two months we have seen strong demand from abattoirs, particularly from processors South of the border, so how are lamb volumes comparing with last summer? On the numbers side, the auction volumes are still running lower than last year in Scotland, but significantly higher south of the border. However, while numbers have been higher at the GB level, carcase weights have been lower and so have live-weights at auction sales. The proportion weighing heavier than the 45.5kg upper bound on the SQQ has fallen back from last year. This may have resulted in overall production volumes being relatively similar to last year, supporting prices.
Many Farm Stock producers are seeing slightly more ‘O grade’ lambs this year, and far fewer over fat 4Ls and 4Hs, with many putting this down to the poor Spring for the main lowland lambing flock. Is this widespread? In terms of quality, the proportion grading at R3L or better in the GB deadweight price reporting sample was significantly lower than last year up until the beginning of August, but has since stabilised at around 71% and has been significantly higher than last August/September’s 67-68%, again underpinning farmgate prices.
Brexit and the resultant weakening of Sterling relative to the Euro is getting much of the credit by many industry commentators for the rise in lamb prices, is this true?
The latest trade figures for July were released in the last few days and it doesn’t seem like export volumes received any boost from the currency depreciation after the Brexit vote; though imports did fall back relative to 2015. There is probably more of an arbitrage thing going on – currency movements have affected the price of lamb traded rather than increased the volume sold and made it harder for NZ lamb to undercut home produced product. A difficult export market may help explain why farmers in Scotland are finding their lambs going to different outlets this year, especially as it has been exports to France that have shown the most significant declines within the UK trade statistics, while other EU markets have been relatively steady. In part this will be down to higher lamb production in France, while the most recent French retail sales figures continued to disappoint (latest data up to July). Then again, farmgate prices have been stronger than last year in France in the run up to Eid al-Adha and consumption is reported to have picked up in recent weeks due to a good spell of weather. It was also suggested that supply had tightened up as producers held on to their lambs a bit longer for Eid.
So if the recent strong lamb trade has not been export driven, what has boosted lamb prices?
The recent strength in the GB market was definitely down to Eid and then there is the Islamic New Year in another couple of weeks’ time which can help keep demand firm.
Many sheep farmers reported a large lamb crop this Spring, it feels like there are plenty of lambs on the ground, do you think that the current buoyant prices be sustained into the Autumn?
If there is to be a seasonal slide in the lamb price, you would expect it to come after the Islamic New Year – particularly as lambs have been slower to arrive than last year, so there is a good chance that volumes will be higher than last year in October. On the consumption side, Kantar figures for the 12 weeks to mid-August were down on last year for lamb whereas lower beef retail prices seem to have boosted beef sales, possibly at the expense of lamb, and this may keep a lid on the market. Though there has been growth reported in sales of ready meals containing lamb. After October is over, prices have historically firmed again in the run up to the festive season. With it very hard to see the euro falling back to last year’s levels, it seems likely that the year-on-year premium in the market will remain.
So finally, if you look deep, deep into your crystal ball, what is the outlook for the hogget trade in early 2017? Looking even further forward, last year’s carry over of hoggs was low, and with a slow start to this season and an expectation that this year’s lamb crop was larger, I would expect there to be more hoggs about in 2017. Again, the exchange rate should help support prices, potentially offsetting the impact of higher supplies. In addition, the NZ lamb crop is expected to be 3% lower than in 2015 so import availability may be tight ahead of Easter; though if NZ has another drought, then early slaughter could lead to higher imports.