AS extraordinary lamb prices and soaring energy rates cripple processors, the sheepmeat industry is on notice to expect shrinking buying activity later in the year.
Australian Meat Industry Council processor general manager Patrick Hutchinson warned the industry of a future with lower lamb processing capacity during the recent Sheepmeat Global Market Forum, hosted by Meat and Livestock Australia, in Melbourne recently.
“We need to recognise issues such as energy, (labour) and the cost of compliance red tape which are all weighing down ,” he said.
“We need to see how capacity impacts the (price) forecast and what metrics we can look at to effectively chart that into the future.”
In the past month, several processors across the country, including Shark Lake Meat Works, Esperance, WA, JBS Longford, Tasmania, Manildra Meat Company, Cootamundra, Western Australian Meat Marketing co-operative, Goulburn, NSW, have temporarily or permanently closed, citing extreme livestock prices and procurement as the cause.
So far this year, due to tighter availability and keen buyer demand in the physical market, both the restocker and light lamb indicators have averaged 145 cents and 101c higher year-on-year, at 542c a kilogram (c/kg) carcase weight (cwt) and 563c/kg cwt, respectively.
Although to a lesser extent, trade and heavy lamb indicators have also trended above year-ago levels so far in 2017, averaging 547c and 535c, up 69c and 52c/kg cwt, respectively.
Mr Hutchinson said price forecasts should consider the inevitable reduction the country’s processing capacity.
“Everyone needs to be cognisant after seeing Cootamundra close, JBS Longford shut down for four weeks and a small processing plant in North West Victoria shut - we’re are under massive constraints,” he said.
“We want to see continued high livestock prices to encourage producers to reinvest and to grow the ewe flock, which is good for us in the long term… but with your forecasts, where is capacity going?”
Prices are forecast to hit record average levels in winter for mutton and lamb, according to MLA analyst Ben Thomas, on the back of a supply shortfall which has been amplified by the current restocking movement.
Mr Thomas said winter would be a “concern” for abattoirs when the nation’s supply shortage was expected to climax.
“If the high prices last longer than what processors are able to handle, when we do see that recovery in production… that will cause a much greater correction in the market,” he said.
“We have already seen a significant drop in shifts and processing capacity across the eastern states.
“Fingers cross they able to ride through this short supply situation and once we do see a build-up in production from 2018 onwards, there won’t be a significant shortfall in the availability of processing space.”