While 2019 has been a relatively positive year in terms of production it has been a disappointing year for sheepmeat markets.

At a sheep meeting in Kilkenny on Monday night, Declan Fennell of Bord Bia presented analysis showing farmgate prices for the year-to-date running 35c/kg behind 2018 levels.

Declan said it should be pointed out that 2018 markets performed much better than in previous years but leaving this aside, markets in 2019 have still struggled, running 15c/kg lower than the five-year average as detailed in Figure 1.

Declan said weak EU markets in the first quarter of 2019 and the availability of lower-cost Spanish lamb had an influence in displacing a percentage of Irish and UK exports into the French market, in particular.

However, he said the major element influencing markets since early 2019 has been the UK’s focus on pushing large volumes of sheepmeat on to the EU market to reduce the sector’s exposure to a no-deal Brexit.

This is reflected in data presented which showed UK export volumes increasing from 41,407t to 50,672t or a 22.4% increase for the first seven months of the year.

While dealing with higher volumes in itself is difficult, Declan said the major challenge has come from this sheepmeat being offered at a lower price with the overall value of UK exports rising by just 8.2% (€233m to €242m).

Key markets

As a result, Irish exports have struggled to remain competitive in key markets with availability of cheaper UK sheepmeat displacing Irish exports. UK exports to Germany increased by 55% (7,700t to 12,000t) for the first seven months of the year while exports to Belgium and France have increased by 13.5% and 13.1%, respectively.

The effect on Irish exports is reflected in Figure 2 with exports to France down 5%, exports to Germany down a worrying figure of 13% while exports to Belgium reduced 7%. Interestingly, sheepmeat exports to the UK increased by 22% for the first seven months of the year.

This, according to Declan, is a direct result of reduced supplies of New Zealand mutton on the market.

Backlog in supply

Declan also highlighted a backlog in supplies developing as a result of beef factory protests as having a long-term negative influence on the trade. Up to July, spring lamb throughput was running 49,253 head above comparable 2018 levels. Throughput in the period from August to October was back by in excess of 100,000 head with this backlog adding pressure to the trade in recent weeks. Declan said there was also a lost opportunity in failing to take advantage of higher demand for the Eid al-Adha festival.

Booming trade

The trade in European markets is in direct contrast to market dynamics in New Zealand and Australia. New Zealand farmers are currently receiving a lamb price equivalent to €4.96/kg, an increase of 30c/kg on the comparable week in 2018 while Australian sheep farmers are seeing returns of €4.60/kg running 60c/kg higher. This is driving an average year-to-date price in New Zealand of €4.53/kg and €4.65/kg in Australia.

There has been 46% growth in US sheepmeat imports since 2013 with import demand now standing at 124,873t

Explaining factors underpinning the trade Declan said that intense demand in China, as a result of African swine fever, is driving New Zealand markets with 50% of its sheepmeat now destined for the Chinese market.

One-quarter of Australian sheepmeat is now exported to China but an equally important driver is increased exports to the US. There has been 46% growth in US sheepmeat imports since 2013 with import demand now standing at 124,873t.

IFA sheep chair Sean Dennehy said farmgate returns in 2019 are not viable to reward sheep farmers for their labour

Australia accounts for 78% of imports with New Zealand making up the balance with 21% of imports.

Returns need to reward farmers

IFA sheep chair Sean Dennehy said farmgate returns in 2019 are not viable to reward sheep farmers for their labour and deliver a return on their investment.

He highlighted a lower farmgate price amounting to €7.52/head as denting confidence while a failure of plants to increase carcase weight to 22kg is also hammering returns.

Added to this, Sean said the IFA is meeting management in Kepak regarding price cuts of 50c/kg on fat score 5 lambs and carcase weights exceeding 50c/kg and is also in talks with ICM over the reintroduction of clipping charges on Category B lambs and increase in cost from 20c/lamb to 30c/lamb.

Comment

The mood among sheep farmers at the meeting was downbeat. Lower farmgate prices were obviously in the spotlight with farmers pointing out that it is clear to see sheep farmers have been badly hit by Brexit and should be eligible for inclusion in a compensation package.

The imposition of mandatory EID tagging was also a sore point. Several farmers said they are bearing higher costs and the sector needs to see EID delivering, firstly, in gaining access to the Chinese and US markets but, more importantly, underpinning higher farmgate returns.

Longer-term there is a much greater need for more transparency in the market

The percentage of quality assured lamb is low at 50% to 55% of total output. Farmers were clear that there is a simple way of increasing this percentage and that is factories paying a higher QA bonus to reward scheme participation.

Longer-term there is a much greater need for more transparency in the market while in the absence of improved market prices government support is required in the short-term to address serious income challenges.

In failing to address issues farmers said it will be difficult to continue sheep farming and impossible to entice new blood into the sector.

The ludicrous situation of basing direct payments on what happened on farms more than 20 years ago and not basing payments on current production was criticised.