17 July 1998

ASSESSING THE PROSPECTS FOR LAMB PRICES…

What are the price

prospects for this seasons

lamb? MLC sheep

economist Lesley Green

looks at the potential and

the possible pitfalls

IT is encouraging to see how lamb prices have recovered since March, and the average price (GB SQQ) was just above last years price in week ended May 23.

Since then, as increasing supplies of new seasons lambs have come forward, it has declined, but the average price has followed that of last year.

The long-awaited recovery in prices, coming at the time when the SQQ starts being calculated from the prices of new seasons lambs only instead of the average of old and new season lamb, clearly demonstrates the depressing effect that the extra hoggets had on the market price in the first five months of this year.

Price rises have been aided by the high price for spring lamb skins, driven by strong demand from the garment industries in Turkey and Poland. The skins are required to supply the Russian market with sheep skin coats and, although the demand is seasonal, it may well continue until the autumn.

Between January and May an additional 1.2m lambs were slaughtered compared with last year. Over this period the number of new season lambs coming forward to the auction markets was lower than last year and supplies have continued to be tighter into June. There was probably some reluctance to market at the poor average prices earlier in the year, but more recently the wet weather has been a contributory factor in slowing finishing. The lamb crop is thought to have been similar to that of 1997 with the effects of the larger breeding flock being offset by lower productivity, as the bad weather at Easter hit hill flocks in particular.

Slower marketings

Despite slower marketings of this seasons lambs, a return to a more normal marketing pattern throughout the rest of the year is anticipated. If this is the case, some of the problems of last year will be avoided. It is hoped more lambs will come forward between July and September this year when supermarket and export demand is at its strongest, preventing a backlog of lambs building up.

Despite the rise in prices for finished lambs it is likely that store prices will continue to remain below those of last year. Many producers who bought store lambs last year lost money. MLC Flockplan results show negative gross margins for both long and short keep systems. For long keep systems, gross receipts were marginally below the purchase cost of lambs, leaving no margin to cover other costs.

This year, store sheep prices are reflecting the fall in finished prices and consequent caution in the market. In April and May MAFF prices for first quality store sheep averaged just over £33/head and in May they were down to £31 compared with £45 at the same time last year.

An important factor in determining the course of finished lamb prices over the next six months will be the export market, where the lamb trade is still suffering from the effect of the strong currency.

Prospects for a substantial drop in the value of the in the pound have receded recently. The latest rise in UK interest rates and the collapse of the Yen have provided another boost to sterling after some weakening in May. The exchange rate of the pound against the French franc rose to over 10 in mid-June and over the month so far has maintained almost the same value as it had last year. Since this time last year, sterling has strengthened against the Irish punt, which has reduced the competitiveness of exports from the UK against Irish imports on the French market.

Although exports started the year quite strongly they have now fallen below those of last year. In the period up to mid-June there has been a 3% decline in volume overall. Sales to France are down 4% but there have been gains in Italy and Belgium.

The strength of the export trade in light lambs will be an important factor in determining the number of hoggets carried over into the first quarter of 1999. Sales to Italy, where last years problems appear to be resolved, can be expected to be above those of last year, while exports to France are likely to pick up again in July when the number of lambs coming onto the market increases and prices are lower but they will be facing plentiful supplies of competitively priced poultry and pork.

It looks as if there will also be strong competition from other meats on the home market this year, which will put pressure on prices. Marketing lambs when they are ready and ensuring that the maximum number fall in the target weight and conformation grades for the supermarket and export trades will help to prevent some of the problems of last year. &#42

PRICEPROSPECTS

&#8226 Stores prices likely to remain down.

&#8226 More orderly marketing predicted.

&#8226 Exports affected by sterlings strength.

The strength of sterling and the export trade will be a key factor in determining finished lamb prices over the next six months.