MarketPulse

WA flock decline signals broader structural issues for Australian sheep industry

Written by Ripley Atkinson | Sep 17, 2024 11:27:18 PM
  • WA sheep and wool producer sentiment is driving a reduction in flock size as producers shift to broadacre cropping.

  • If this decline continues, long-term structural issues may emerge for the sheep sector.

  • Additionally, the largest breeding ewe flock in recent history is expected to drive higher mutton turnoff in spring 2024.

Meat & Livestock Australia’s Sheep Producer Intentions Survey (SPIS) is an excellent resource for gauging the sentiment of sheep and wool producers nationwide. It provides a wealth of data on flock demographics and trends, allowing for detailed analysis.

Positively, the latest report released in July showed an improvement in national sentiment for the sheep meat sector, rebounding from the lows of October 2023. However, when examining the data at a state level, the continued decline in confidence among WA sheep and wool producers is concerning for the national flock.

WA is a cornerstone state for the sheep industry, playing a critical role in both the sheep and wool sectors. As more WA producers permanently shift from sheep to broadacre cropping, this trend has the potential to create significant ripple effects for the entire Australian flock.

Why a smaller WA sheep flock matters for the rest of Australia

The SPIS survey clearly highlights the negative sentiment among WA sheep producers, and it's unlikely we’ll see a substantial turnaround when new numbers are released later this year. Nationally, sentiment for sheep meat producers is +4, whereas in WA, sheep meat producer sentiment stands at -64, and wool producer sentiment is -38, compared to -24 nationally.

WA is home to 19% of the national flock and ranks as the third most populous state for sheep in Australia. It has long been a key pillar of the national flock, with a historically larger share of Merino ewes in its breeding base.

The SPIS survey also points to significant operational shifts in WA over the next 12 months, with 67% of WA sheep producers planning to decrease their ewe flocks. By April next year, the breeding ewe flock in WA is forecast to decline by 27%, or 2.43 million head — these are forecasted numbers from producers themselves – not modelled figures.

This shift is supported by data from the Grain Industry Association of WA (GIWA), which reported a 140,000-hectare year-on-year increase in planted crop area in July. The writing is on the wall.

If WA continues to liquidate its flock in favor of permanent broadacre cropping, the national flock could face seismic repercussions. A permanently smaller flock would mean lower lamb and mutton turnoff, reduced sheep meat and wool production, and limited ability to meet export demand.

This also overlooks WA’s critical role in rebuilding eastern states' flocks during times of need, such as in 2020, when WA played a significant part in the flock cycle.

Spring flush of mutton

Spring marks a peak period for mutton (particularly ewe) turnoff as lambing and weaning lead to the removal of older or non-productive ewes to make way for younger breeding stock. Just last week, according to MLA’s NLRS slaughter report, mutton slaughter reached 212,000 head — the highest level since the first week of December 2019.

In the coming months, and into 2025 (weather permitting), we can expect large numbers of sheep to be processed. The breeding ewe flock is the largest it has been since 2007, so an increased turnoff is inevitable, leading to higher production volumes. As a result, we should see a rise in monthly mutton export volumes through the end of 2024.

In terms of pricing, this increase in supply could place downward pressure on mutton prices. However, it will likely be a two-tiered market: ewes with the potential to rejoin breeding flocks will be in demand in certain markets, while older, cast-for-age ewes will face tougher price competition due to the larger supply of mutton.

 

Ripley Atkinson's experience in the red meat industry and current role at StoneX developing price risk management tools for Australia’s sheep and cattle sectors ensures he delivers unique, whole of supply chain insights and analysis across key factors such as prices, supply, production and the drivers of the sheep and cattle cycles.

StoneX Disclaimer The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI . StoneX is a trading name of StoneX Financial Ltd (“SFL”). SFL is registered in England and Wales, Company No. 5616586. SFL is authorized and regulated by the Financial Conduct Authority [FRN 446717] to provide to professional and eligible customers including: arrangement, execution and, where required, clearing derivative transactions in exchange traded futures and options. SFL is also authorised to engage in the arrangement and execution of transactions in certain OTC products, certain securities trading, precious metals trading and payment services to eligible customers. SFL is authorised & regulated by the Financial Conduct Authority under the Payment Services Regulations 2017 for the provision of payment services. SFL is a category 1 ring-dealing member of the London Metal Exchange. In addition SFL also engages in other physically delivered commodities business and other general business activities which are unregulated and not required to be authorised by the Financial Conduct Authority. StoneX Group Inc. acts as agent for SFL in New York with respect to its payments services business. StoneX APAC Pte. Ltd. acts as agent for SFL in Singapore with respect to its payments services business. StoneX Financial Pty Ltd (ACN 141 774 727) holds an Australian Financial Service License (AFSL: 345646) for Dealing in Securities, Exchange-Traded Derivatives Contracts, OTC Derivatives Contracts and Foreign Exchange Contracts, and is regulated by the Australian Securities and Investments Commission. ‘StoneX’ is the trade name used by StoneX Group Inc. and all its associated entities and subsidiaries. Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. Past performance of any futures or option is not indicative of future success. Indicators are not a trading system and are not published as a specific trade recommendation. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.