Livestock prices

Saleyard prices for cattle, sheep and lambs have fallen significantly over the last year due to a combination of higher livestock turn-off and lower buyer demand in saleyards (Figure 1.1). These changes in supply and demand dynamics have been driven by both the expectation and onset of drier seasonal conditions, which have reduced pasture growth and increased the incentive for livestock turn-off as feed becomes relatively more expensive. This has increased the supply of animals in saleyards, placing downward pressure on saleyard prices. Drier seasonal conditions have also reduced restocker demand, lowering demand for cattle, sheep and lambs.

For cattle, the average national feeder steer indicator price in October 2023 was 59% lower year-on-year. For sheep, the average national trade lamb indicator price in October 2023 was 40% lower year-on-year and the average national mutton indicator price was 75% lower. The larger fall in the mutton price indicator reflects an increase in the number of older breeding ewes, used to rebuild the sheep flock, being sold into a market with high supply.

Livestock prices have fallen by a similar amount across most Australian states, reflecting the widespread onset of drier conditions (Figure 1.1).

Figure 1.1 Monthly average saleyard prices for cattle, lambs and sheep

The shift in market dynamics from herd and flock rebuilding to rapidly increasing turn-off has been driven by the transition from three consecutive wet years to drier and warmer seasonal conditions – see Seasonal Conditions for more information. The subsequent lower availability of pasture to feed animals has increased the relative cost for farmers to hold their cattle and sheep, thereby increasing their incentive to turn-off livestock.

The recent decline in livestock prices has been driven by several factors, including:

• A sudden shift to drier seasonal conditions following consecutive La Niña years.
• A high supply of animals in saleyards and low producer demand as producers destock their herds and flocks.
• A lag in expanding the capacity of meat processing facilities which has limited the ability to absorb additional supply.
• A fall in global prices, particularly for sheep meat, reflecting higher global meat supply.

Large herd and flock sizes have increased livestock supply

Over the past three years, three consecutive La Niña events have led to strong pasture growth across Australia, increasing feed availability and incentivising producers to increase their herd and flock sizes. From 2019–20 to 2022–23, the national cattle herd and sheep flock are estimated to have grown by 10% and 14% respectively (Figure 1.2 & Figure 1.3). For cattle, these good conditions saw a high number of breeding females retained on farm to rebuild herd numbers. For the sheep flock, prolonged favourable conditions and high sheep prices incentivised producers to retain older ewes, join ewe lambs and keep more replacement ewes to further grow flocks.

The intensity of the herd and flock rebuild can be seen in the turn-off ratio for sheep and cattle – a measure of animals sent both for slaughter and live export as a proportion of the total herd or flock. Turn-off ratios for both sheep and cattle reached record lows throughout 2021–22 as producers across Australia kept livestock on farm to rebuild herds and flocks.

Lamb and sheep prices began falling in the second half of 2021, approximately a year earlier than cattle prices, reflecting the larger sheep flock and a softening in restocker demand. The sheep flock generally rebuilds faster than the cattle herd due to the shorter reproductive cycle of sheep. The faster rebuild of the sheep flock meant that by 2021 there was a relatively large national sheep flock (Figure 1.3). This caused the supply of lambs to rise – as good seasonal conditions and high joining rates contributed to high marking rates – and restocker demand to soften, leading to a decline in saleyard prices. The fall in mutton prices was relatively larger and occurred earlier than the fall in lamb prices reflecting the increased supply of old breeding ewes that had been used to rebuild sheep flocks.

Processors are increasing their capacity, but this is taking time

Despite lower livestock prices, demand from meat processors at the saleyards has remained relatively constrained given the lead time required to increase meat processing capacity. This is having a particularly large effect on current saleyard prices as processors and feedlots (particularly for cattle) are the main buyers in saleyards during periods of drier seasonal conditions.

While meat processing capacity has started increasing, livestock supply in saleyards has grown more quickly. As such, meat processor capacity constraints have meant that meat processor demand in saleyards has risen by less than livestock supply, driving down saleyard prices. For example, in the September quarter 2023 cattle yardings increased by 31% year-on-year while cattle slaughter only increased by 23%.

Meat processing capacity declined in 2020 as rising livestock prices and COVID-19 induced labour shortages squeezed processing margins; these same factors kept processing capacity relatively low throughout 2021 and 2022. In late 2022 and early 2023 the profitability margins of meat processors started to rise, reflecting lower livestock prices and improved labour availability due to higher international migration. This incentivised meat processors to progressively increase their processing capacity, although this takes time. For example, industry liaison conducted ahead of the June 2023 Agricultural Commodities Report indicated that it takes around eight months for new workers at meat processing facilities to complete their training.

Destocking has increased supply and reduced demand in saleyards

In early 2023, the Bureau of Meteorology forecast drier and warmer seasonal conditions, and the increasing likelihood of the onset of both El Niño conditions and a positive Indian Ocean Dipole. The drier outlook encouraged farmers to preserve their pastures and conserve feed by proactively destocking herds and flocks. This simultaneously increased the supply of livestock and decreased restocker demand in saleyards, leading to the sharp decline in cattle, lamb and sheep prices that has occurred over 2023. As an example of increased livestock supply to saleyards, national cattle yardings in the September quarter 2023 reached their highest level since the March quarter 2020.

Some reports also indicate that the quality of livestock that has been sent to saleyards has also been mixed. This has allowed buyers (who have a large supply of livestock to choose from) to be more selective, placing further downward pressure on livestock prices, particularly for livestock that do not meet buyer specifications.

Since livestock producers mainly use saleyards to purchase restocker animals, drier seasonal conditions can markedly reduce producer demand, particularly when herd and flock sizes are relatively large. This places downward pressure on livestock prices and typically causes a larger decline in prices for restocker animals compared to animals that are being sold for backgrounding, feedlotting or processing. For example, the monthly average of the national restocker lamb indicator fell by 56% year on year in October 2023, while the national trade lamb indicator fell by 40%.

Drier conditions are driving the decline in sheep prices across Australia

Drier seasonal conditions across Australia are driving a decline in sheep prices in both Western Australia and the eastern states. Throughout 2023, sheep and cropping regions in Western Australia and most of eastern Australia simultaneously received below average rainfall (Figure 1.4).

Figure 1.4 Rainfall deciles for 1 January to 31 October 2023

Eastern state sheep prices can sometimes be impacted by Western Australian sheep transfers. Drier conditions in Western Australia and more favourable conditions in eastern Australia can mean sheep are transported east where sheep prices are higher due to better seasonal conditions. As such, it can be more profitable for producers to sell their sheep in the eastern market, rather than in Western Australia where saleyard prices are driven lower by increased supply and reduced restocker demand. When these conditions occurred in both 2019–20 and 2020–21, Western Australia transferred 1.4 million sheep to eastern Australia (Figure 1.5).

Interstate transfers from Western Australia to the eastern states have remained relatively low in 2023. This indicates that increased sheep supply from Western Australia is not a key driver of lower prices across the eastern states. Lower prices in eastern Australia have reduced the incentive for Western Australian sheep producers to transport sheep east. Interstate sheep transfers from Western Australia to eastern Australia during the September quarter 2023 reached their lowest level since 2018 (Figure 1.5).

Figure 1.5 Interstate sheep transfers from Western Australia to eastern states

Falling world prices are contributing to lower saleyard prices

World prices for beef and sheep meat have fallen over 2023–24 to date, reflecting rising global supply (see Outlook for Livestock). Falling world prices have contributed to the decline in domestic saleyard prices (Figure 1.6 & Figure 1.7). Lower prices for Australian meat exports can reduce processor demand in saleyards – because lower export prices tighten processor margins – placing downward pressure on domestic saleyard prices.

Australia is a major exporter of red meats – the world's third largest beef exporter and largest sheep meat exporter – which means that changes in Australian production can influence world prices. However, Australian exporters do not set the price in world markets. World prices are set by the balance between, and changes in, world meat supply and demand. Increased Australian red meat production has placed downwards pressure on world meat prices, particularly over the last year.

The influence of rising Australian production on world prices has been particularly noticeable in the sheep industry over the last year. In 2022–23, Australian sheep meat export volumes rose by 12% while exports from New Zealand – the world's second largest sheep meat exporter – rose by 4%. Together, higher export volumes from Australia and New Zealand – who account for over 70% of world sheep meat exports – increased world sheep meat supply and lowered prices (Figure 1.7).

Drier seasonal conditions the main driver of falling lamb and sheep prices

Many factors are currently causing sheep and lamb price falls across Australia, such as drier seasonal conditions and constrained demand from meat processors. Other aspects, such as producer confidence in the sector, can also influence production decisions and prices. However, the Australian Government’s commitment to phaseout live sheep exports by sea is not likely to be a driver of the recent price declines.

Industry reports indicate that sheep producer confidence remains low across Australia. Many factors can lower producer confidence, including falling commodity prices, drought and the Australian Government's commitment to phaseout live sheep exports by sea. The Government's commitment to the phaseout is reported to have lowered industry confidence in some areas of the Western Australian sheep industry – the only Australian state from which live sheep are exported by sea.

However, the onset of drier conditions across Western Australia has likely been the primary driver behind the current large increase in sheep turn-off. This aligns with the management responses of sheep producers across Australia and may also explain prices in the state falling at a lower rate than elsewhere. Over the year to October 2023, MLA’s trade lamb indicator price for Western Australia fell by 28%, compared to a 40% fall in the national indicator. Over the same period, MLA’s mutton indicator price for Western Australia fell by 71%, compared to a 75% fall in the national indicator. The relatively smaller fall in Western Australian prices compared to national prices indicates that the primary driver of the price falls are the higher supply and lower demand in saleyards due to drier seasonal conditions across Australia.

Live export trade by sea remains open, and Western Australian producers continue to utilise live exports as an avenue to turn-off sheep. Drier seasonal conditions and lower sheep prices in Western Australia have led to an increase in live sheep exports by sea in 2022–23 as producers utilised this option to turn-off sheep and destock. Live sheep exports by sea are forecast to rise again in 2023–24 due to low sheep prices and as drier seasonal conditions incentivise flock destocking (see Outlook for Livestock).

Although falling sheep prices in 2022–23 and 2023–24 present challenging conditions, it is worth noting that sheep prices and supply in Australia follow a cyclical pattern. In particular, the cyclic nature of saleyard supply is strongly affected by changes in seasonal conditions. For example, in 2012–13 drier seasonal conditions following consecutive wet years led to a sharp decline in sheep and lamb prices, driven by an increased supply of sheep and reduced restocker demand (Figure 1.7). Similar to 2022–23, high sheep supply, constrained demand from meat processors, and a rapid decline in restocker demand from producers combined to cause excess supply of sheep in saleyards.

Before 2012–13, the sheep flock had been rebuilding, as two consecutive La Niña events from 2010–11 to 2011–12 promoted pasture growth and increased feed availability. These were the first consecutive years of growth in the sheep flock since the late 1980s and total lamb and sheep slaughter reached record lows in both 2010–11 and 2011–12. This increased sheep and lamb saleyard prices and in response to higher prices meat processors scaled back operations as profitability margins were squeezed.

In 2012–13 an outlook for, and then onset of, below average rainfall and above average temperatures caused sheep farmers to quickly switch from rebuilding their flocks to destocking. This led to a sharp increase in the supply of lambs and sheep to saleyards and a decrease in restocker demand. Meat processor demand did not keep pace with the increasing supply available for slaughter due largely to the lead time associated with expanding meat processing capacity. This led to a large decline in lamb and sheep prices in 2012–13 with the national mutton indicator and national trade lamb indicator falling by 47% and 16% respectively.

Previous analysis by the Australian Competition and Consumer Commission (ACCC)  concluded that:

“While there is a relationship between the price paid to farmers for livestock and retail meat prices, there are many factors throughout the supply chain that make drawing a simple linear relationship problematic. The assumption that there should be a direct and immediate link ignores the complexity of the supply chain itself and of supply arrangements within the chain.”

Retail red meat prices have begun to decline in recent months, driven by lower livestock prices. Over the year to October 2023, beef and veal prices fell by 4.1% while lamb and goat prices fell by 9.3%; this reflects a smaller decline than saleyard price falls in the same period. In Australia, retail red meat prices are typically less volatile than, and tend to lag, changes in saleyard prices (Figure 1.8).

Recent analysis from Meat and Livestock Australia indicates that the average retail price of beef and lamb typically lags livestock saleyard prices by around eight months. This largely reflects the use of forward contracts. According to the ACCC, major supermarkets prefer to purchase cattle using forward contracts because they provide certainty of supply and allow supermarkets to make a consistent product offering to retail customers; they also assist in managing price risk for both the producer and retailer. Forward contracts mean that some retailers lock in prices around six months ahead of current saleyard prices. As a result, some retailers may still be buying meat at a premium to the current market prices.

Retail prices also tend to smooth out large changes in saleyard prices. Large changes in saleyard prices over the last 10 years have typically been associated with a smaller, lagged change in retail prices (Figure 1.8). Meat retailers typically smooth out changes in retail meat prices to provide consumers with price certainty and insulate them from some of the volatility in livestock saleyard prices.

Figure 1.8 Quarterly year-ended change in livestock and retail meat prices

Despite recent price falls, saleyard prices for cattle and sheep have risen strongly over the last decade and at a faster rate than retail meat prices. In the ten years leading up to the most recent cyclical decline (December quarter 2021), the average saleyard price of heavy steers increased by around 140% while retail prices for beef and veal rose by 62%. Over the same period, the saleyard price of heavy lambs increased by 84% while retail prices for lamb and goat rose by 30% (Figure 1.9).

Figure 1.9 Quarterly livestock prices and retail meat prices

The cost of livestock is only one component of the total cost incurred by supermarkets (and other retailers) in providing fresh meat to consumers. ACCC analysis demonstrates that the price of livestock is a relatively small proportion of the total cost of the final meat product; as such a large decrease in the price of livestock typically results in a much smaller fall in retail meat prices.

An array of inputs across the value chain can impact retail prices including the cost and availability of labour, fuel and other energy costs, warehouse availability and other transportation logistics. When the costs of these other inputs remain elevated, this can reduce the ability for retailers to lower meat prices.