SINCE the last market update, conditions facing producers have deteriorated, writes MLC economist Lesley Green. Throughout July, prices held up well in comparison with those of last year, and the GB SQQ averaged 108p/kg liveweight compared with 112p/kg in July last year. Although slaughter numbers were up 4% during July, they were lower than MLC forecasts as a result of poor weather slowing lamb finishing.
In the second half of August lamb prices fell sharply, with the GB SQQ dropping by 10p/kg lw between weeks ending 15 and 22 August. Compared with last year, the August average SQQ was down 13p/kg. Further falls followed during the first week of September to give an average of 85p/kg.
It is clear that the main trigger of recent price falls has been economic and political problems in Russia and consequent devaluation of the Rouble. Producers are now facing a difficult autumn as a result of these external events in markets beyond the EU. Russias economic difficulties have had knock-on effects in all red meat markets, but the volatile lamb skin market appears worst affected.
For the past few years the skin trade has been dominated by sale of wool-on skins to Turkey and Poland for manufacturing garments for Russia. Demand has been sufficiently strong for these skins to command a substantial premium over skins going to UK fellmongers for tanning after the wool has been removed. The Turkish market has now collapsed as Russians are no longer buying, and survival of the Turkish industry is under threat.
The disappearance of Russian buyers has disrupted the market so much that no new price equilibrium has established. Sudden and extreme price movements are not uncommon in the skin trade. A similar drop was experienced in 1990 when average prices fell from around £6 in April to £2 in May.
The market will settle, but it will be at a reduced price. If past experience is a guide, then this could be about £2 a skin, and there is little hope of any increases before the end the trading season. The age of lambs going into the wool-on trade is an important factor, and in recent years demand has lasted from April up until November.
The Russian crisis has occurred at the worst possible time for the British lamb industry, when the bulk of this seasons lambs are yet to be marketed. Lambs have been slow to finish, and numbers slaughtered in the first three weeks of August were well down on MLC forecasts, but, nevertheless, still 1% up on last year.
Last year, slaughter numbers were much lower in August and September than in a normal season. There is some similarity this year, with fewer coming forward in August due to bad weather and a further slowing in September in reaction to price falls.
This year, however, the store sheep trade also realised lower prices, more in line with current uncertainty over finished prices. Latest MAFF prices for first quality store sheep (other than hill) show a £6 difference between July 1997 and 1998. Since August the MLC has been collecting store sheep prices from a sample of markets and results suggest that in August, average prices were down about £10/lamb with an average price across all breeds of about £30/head. Initial returns for the first week in September indicate some further falls.
Provisional results of June census surveys released so far show a rise of 6.4% in sheep under one year old recorded on farms in England, and a 3% increase in Northern Ireland. Assuming similar increases have occurred in Wales and Scotland, there could be another 10.5m lambs to be slaughtered from the beginning of September.
The strength of sterling has made exporting difficult and, up to August 22, lamb carcass exports were down 2%. Exports to France generally peak in autumn after the holiday season but reports in the French press say it will be difficult to recoup losses due to the skin price fall thorough higher prices on the French market. Despite lower lamb production in France, there are plentiful supplies of other meats at competitive prices.
On the home market, poor weather and high value of sterling have reduced tourist numbers, affecting the volume of meals bought in catering establishments, Increased volumes and lower prices in some other meat sectors will make it difficult for lamb slaughtered to make up the loss in revenue for skins. *