A steady year for sheep farmers thus far

Sheep farming usually operates in the shadow of beef, but it is currently the better news story of livestock farming, with prices pushing towards €5.50/kg across the island of Ireland at a time of year when they are usually on the way down.

These prices are being achieved against the background of higher factory kills, with almost 64,000 more lambs/hoggets going through factories in the first six months of 2020 compared with last year and 21,471 more going through factories in Northern Ireland. Export markets to the UK and EU have remained strong however, because production is down substantially in Britain and other large EU sheep producing countries like Spain and France. AHDB forecasts total output to be down 7% this year and the figures for the first three months show 11,000t less UK sheepmeat produced, a 35% decline on the first quarter in 2019.

Global situation

Unlike beef, there is no significant participation by North American or South American countries in the international sheepmeat trade. Australia and New Zealand (NZ) account for 70% of global exports, followed by the UK and Ireland. Unlike beef and dairy, the EU had a deficit of 6% production relative to consumption for sheepmeat when the UK was a member.

NZ has traditionally filled this gap in supply, as it has a tariff-free quota to supply 228,000t of sheepmeat annually to the EU. However, China replaced the EU as their main export destination in 2018 and in the period from October 2019 to May 2020, NZ exported just 63,811t of sheepmeat to the EU compared with 71,220t in the same period the previous year. Exports to China for both these periods exceeded 98,000t, making them the priority market for NZ exports at a time when supplies were tighter in the EU.

Australia, unlike NZ, doesn’t have a large tariff-free quota at present and therefore the EU has never been a significant market for Australian exports. China is also their main export destination, taking 142,000t in the year to the end of June, an increase of 10% on the previous 12 month period.

Australia has just come to the end of a prolonged drought period, which resulted in the national sheep flock falling to a 100 year low of 63.5m sheep and 20.6m lambs, according to Meat and Livestock Australia (MLA) and slaughter forecast is down 5% on last year’s levels. Restocking has seen less supply and 2020 exports to China are down, meaning that increased levels of NZ exports are likely to be directed the way of China. Ireland still hasn’t secured access to China for sheepmeat and this has to be a priority for the new Government.

COVID-19 impact

UK lamb consumption in the year to the end of February was down 3.7%, according to AHDB/Kantar retail data and with the loss of food service and hospitality for several weeks, it was a bleak prospect for demand. However, like beef and grocery in general, COVID-19 has led to a reawakening of domestic meat consumption and home cooking.

Kantar data for June suggested a surge in sales, with purchases for w/e 28 June 46% higher than the same week in 2019. This is an exceptional figure, but trends in recent weeks have been for higher purchases than the previous year.

Comment

Markets, especially for sheepmeat, are notoriously volatile and while high prices are welcome for farmers, they make the product a luxury purchase for consumers. A COVID-19 recession and loss of consumer purchasing power could squeeze demand. On the other hand, there is no glut of supplies from Australia or NZ, and production is well down in Britain and slightly lower in the rest of the EU. There is also the question of the EU-UK trading relationship that hangs over the market for later in the year, which creates uncertainty, at best.