17 April 1998

LEARN HARD LESSONS OF 97

Producers selling lambs would do well to look at the

mistakes of last year to help minimise risks of poor prices

this season. MLC sheep economist Lesley Green reports

THERE are some encouraging signs to start the new season. Prices have begun to improve. The GB SQQ reached 100.84p/kg on Mar 18; the first time it had been over 100p since November.

However, to assess the prospects for the sheep market in the next 12 months, it is worth first looking back over the past year to see what can be learned from a season that proved to be a disaster for many. It would be dangerous to dismiss the experience simply as a freak year and ignore any underlying changes in market conditions.

Until last September prices for finished lambs, as reflected in the GB SQQ, were above those of 1995 and although, not reaching the peaks experienced in the aftermath of the BSE crisis, they appeared to be reasonably strong. It was in the final quarter that prices collapsed and they continued to decline into 1998. The GB SQQ for Feb 1998 averaged 79.13p/kg, 44% below its year earlier level and the lowest February price since the variable premium was phased out.

A warning was raised in Sheep Update at the end of September when unrealistically high prices were being paid for store lambs. It was pointed out then that the high finished prices being achieved in the summer were, at least in part, due to the shortage of lambs on the market and that a surge in marketings would see prices come down.

The shortage of lambs at that time did not reflect a lack of availability but a change in marketing patterns, resulting from a combination of factors connected with the weather, grass and root crop availability and lower cattle numbers. The effect was that in the calendar year 1997 only 14.7m clean sheep were slaughtered compared with 15.6m in 1996.

Marketings up

Although marketings picked up towards the end of 1997, the proportion of the lamb crop carried over into the new year was unusually high at about 25% compared with a more usual figure of about 20%. This means that between 600,000 and 650,000 extra lambs will have been slaughtered in the first quarter of this year. When the backlog of lambs began to appear on the market, the poor quality of many depressed prices further.

Over the April to March season as a whole there will probably be a slight decline in the total number of clean sheep slaughtered, from 15.47m in 1996/97 to an estimated 15.36m in 1997/98.

Although much of the current price weakness can be attributed to disorderly marketing, it is also clear that the unusual marketing patterns in the summer which helped keep up prices, served to mask other weaknesses in the market which became more apparent later.

Lamb exports to the EU in 1997 are estimated to have been 16,000t below those of 1996 which meant additional supplies had to be absorbed on the home market. The export market was affected by the rise in the value of sterling compounded by some resistance on the French market to imported supplies and a desire to source home product.

The live export trade was also very difficult with few light lambs going to Italy. Overall, the number exported was 200,000 below the number exported in 1996 and less than half the number in 1995. This was another addition to supplies on the home market and may well have contributed to the number of hoggets carried over into this year.

On the home market there was also a recovery in retail beef demand and increased supplies of pork, both of which increased competition. Available data suggest that imports in 1997 were no more than in 1996 and probably about 4000t lower. However, if a greater share of home production is being marketed in the first quarter of the year, then it will be competing more directly with New Zealand chilled supplies.

Backlog forward

Prices have now begun to pick up. It appears that most of the back- log of hoggets has already come forward, at least in England. The numbers going through the auction markets in the first two weeks of March were very similar to those of last year. Producers have been careful to avoid further losses caused by marketing sheep with erupted teeth.

Low domestic prices have helped offset the strength of sterling and exports have begun to improve, aided by some promotions in France. The opening of the Aids to Private Storage Scheme seemed to provide a psychological boost to the market although whether it proves to be attractive at current prices is doubtful. Any lamb going into private storage will be coming onto the market again in three to five months time when the new seasons lamb will be plentiful.

Some of these factors which are helping to lift the market now will be short-lived. The continued improvement in export demand will depend on partly the strength of sterling and despite forecasts from the banking sector of some decline in its value later in the year, all the current signs are that the sterling will continue to be strong. Ewe carcass exports have been hit by the specified risk material regulations brought in this year.

Fatteners will be very wary this year when buying store lambs and prices are unlikely to reach last years levels. It would be surprising to see as many lambs carried forward into next year unless conditions are very unfavourable in the autumn. In view of the penalties attached to overweight and overfat stock and the requirement to remove the spinal cord of lambs which appear to be over a year old, producers will be unwilling to hold stock longer than necessary.

As far as numbers are concerned there is likely to be a rise in clean sheep availability. With an increase in the breeding flock expected and lambing rates similar to those of last year, current forecasts suggest that the rise will be in the order of 4% over the April to March period year. However, the increase in clean sheep availability is likely to be offset by a fall in ewe culling.

Costs kept down

MAFFs announcement that it will not recover the charges for implementing the SRM regulations will help to keep processing costs down but the industry will have to cope with increased costs due to the removal of the rendering subsidy and extra MHS charges.

Overall, it looks as if the 1998/99 season will be a difficult one with prices remaining below those of last year until late in the year. Producers will need to keep a careful check on their costs and aim to target the market with the right product at the right time. &#42

An increase in the UK ewe breeding flock and lambing rates similar to

that of last year, suggest a rise of 4% in clean sheep availability this season.

LAMB MArketing 1997

&#8226 Store lambs too expensive.

&#8226 Change in marketing pattern.

&#8226 Sales backlog in spring.

LAMB MARKETING 1998

&#8226 Market boost may be short-lived.

&#8226 Sterling likely to increase.

&#8226 Rise in clean sheep availability.

&#8226 Careful control of costs.

Fatteners will be wary this year when buying store lambs, and prices are unlikely to reach last years levels, warns MLC economist Lesley Green.