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Supply and Demand Remain Main Influences on Sheep Trade

15 July 2016

UK - The basic law of economics regarding supply and demand remains the main factor influencing the sheep trade.

“The conclusion of the Muslim holy month of Ramadan typically provides a short term lift in demand for sheepmeat and support for the market price,” said Stuart Ashworth, Quality Meat Scotland’s Head of Economics Services.

In the week running up to the end of Ramadan, prime lamb prices lifted 6 – 10p/kg depending on location in the UK. However, this strength in the marketplace led to a big lift in the volume of prime lambs sold through the auctions in the early part of this week, particularly in Scotland. Accordingly, with the market satisfying its additional requirements, prices cooled again.

“In other words the market has proven to be sensitive to the supply and demand balance,” said Mr Ashworth. Nevertheless, market prices have remained well ahead of this time last year, averaging 18 per cent higher in the week ending July 6. One of the main drivers of this change in conditions has been a slow start to the season.

Indeed, throughout June the supply of prime lambs to auction markets has been running some 8 – 10 per cent lower than last year and this, he said, had contributed to market prices running some 7 – 9 per cent higher.

Furthermore, this year the end of Ramadan coincided with the first ripples of Brexit hitting the currency markets.

“Compared to a fortnight ago sterling is currently 10 per cent weaker and compared to a year ago 17 per cent-18 per cent weaker. This means that in euro terms the current lamb price is little different to last year whereas it is up by 17-18 per cent in sterling, making exporting more profitable,” said Mr Ashworth.

With sterling also falling sharply against the New Zealand dollar, the cost of importing from there has increased, making home-produced lamb more competitive. At the same time a smaller New Zealand lamb crop last year and higher early season kill suggest that import availability will have tightened.

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