Mutton market marches into 2017

The Australian mutton market has had one of the strongest starts to the year, all on the back of lower supplies and the expectation for availability to remain constrained for the duration of 2017.

After the first two weeks of February, the national mutton indicator has averaged 417¢/kg cwt, up 43% from the same time last year. The only other year when similar comparisons can be drawn is back in 2011, when the national mutton indicator averaged 438¢/kg cwt in February, before edging up to a record 461¢/kg cwt the following month.

Interestingly, comparing the drivers behind the similar opening stages of the year, there are actually three very different factors at play.

Firstly, while the constrained supplies are a common reason behind the strong start to the year on both occasions, the degree at which this was the case varies considerably. After the first six weeks of 2017, eastern states mutton slaughter averaged 108,000 head per week, down 4% from the same time last year, but up 26% from the 85,400 head per week average in 2011. Thus supplies currently are tight, but not nearly to the same extent as in 2011.

The second diverse factor at play between the two periods is the relative strength of the A$. In fact, the A$ has averaged 76US¢ in February this year, which is 24% below the same time in 2011, and considering the majority of Australian mutton is exported, that has gone a long way to assisting the market.

And finally, seasonal conditions in the main sheep producing regions of Australia this year have been much hotter and drier than for the same period in 2011. That is, the majority of NSW and Victoria this year have only had ‘average’ to ‘below average’ rainfall for the November to January period, while during the same time frame in 2011, rainfall was ‘above average’. This ultimately led to the high retention, and consequent much lower slaughter.

Looking forward, while the A$ is unlikely to return to 2011 levels for the foreseeable future, the availability of mutton on the market will continue to be the main price driver and any reprieve from the current hot and dry conditions will likely only add further support to the market.