Complex Range of Factors Affecting Prime Lamb Prices

A complex range of factors is affecting the current prime lamb price movement, according to Stuart Ashworth, Head of Economics Services with Quality Meat Scotland (QMS).

Earlier in the season the number of lambs reaching the market was much higher than last year. However more recently the volume of lambs in the market has fallen below year earlier levels but the number of heavier lambs in the market has increased.

“In this respect the recent fall in prices cannot be laid solely at the door of a high volume of lambs and other market elements must be at play.  Nevertheless, the increase in heavy lambs outside the standard quality quotation, or preferred market specification, will act as a brake on the trade,” said Mr Ashworth.

The current auction market price of around 155 p/kg liveweight is the lowest at this time of year for more than four years. It is around 9% lower than this week last year, although last year the price did fall steeply in the second half of September.

Recent consumer market information shows a growth in consumer demand for beef; although demand for beef mince is steady, and a decline in lamb consumption.  This may mean some consumers are switching away from lamb. 

“Lamb is not a popular dish when the weather is hot and some build-up of roasting joints will have occurred as, for example, demand for leg roasts has come under pressure while demand for lamb chops has remained good,” said Mr Ashworth.

However, he observed, the biggest contributor to this decline in demand for prime lamb cuts and joints has been a fall in supply of imported lamb which translated into a fall of more than 50% in consumption of imported lamb prime cuts over the four weeks to mid-June.  Consumers have remained more loyal to home produced lamb but, even here, consumer demand has been sluggish and has not replaced the fall in use of imported lamb.

“Two other potential drags on lamb price are changes in sheepskin prices and the sterling Euro exchange rate. Sheepskin prices have come under pressure in recent months standing some 25-30% lower than this time last year as demand from China has eased.  This inevitably puts some pressure on the live lamb price,” Mr Ashworth added.

Also exerting some pressure on the price is an exchange rate which sees sterling some 7% stronger against the Euro compared with this time last year.  This means that in Euro terms UK lamb prices are a more modest 2-4% down on the year. 

Further complicating the export trade is the relative movement in domestic lamb prices in our major trading partner and competitor countries. The equivalent of a typical UK lamb is trading 6% down on the year in France, 4% down in Germany, 3% down in Spain and 2% down in Ireland. 

“Light lambs under 12.5 kg deadweight are trading 14% down on the year in Spain but prices are 2% higher in Italy.  The downturn in lamb prices across Europe alongside a reduced supply points towards sluggish consumer demand for lamb as European economies continue to struggle,” said Mr Ashworth.

The importance of the export market grows through the autumn, he pointed out, as a larger proportion of UK production is exported in the winter months than through the summer and early autumn.

Consequently, exchange rate movements and market sentiment in European markets weigh heavily on the UK market in the final quarter of the year.  However, Mr Ashworth stated, what may not weigh heavily on the market are New Zealand supplies.  The recently released Beef and Lamb New Zealand market outlook is forecasting a decline in export lamb production of 2.6% for the 2014-2015 production year.