MLA’s Manager of Market Information Services Ben Thomas said the market was being influenced by a combination of factors, including extremely strong producer intent to retain ewes for flock rebuilding, the current strength of the wool market and low grain prices.

“Lamb slaughter is expected to contract further this year, revised down a further 500,000 head from original predictions to 21.5 million head for 2017 and down 1.5 million head, or 7 per cent, on the 2016 record,” Thomas said.

“In terms of availability throughout the year, on the ground reports suggest a reasonably strong supply through to the end of April, before numbers will become tight until the new spring flush.

“Lamb production is expected to fall 6% year-on-year in 2017 to 481,600 tonnes carcase weight (cwt), before rebounding back above the 500,000 tonnes mark in 2019.

“Similar to lamb slaughter, mutton processing is also expected to contract further year-on-year, with a 1.2 million head, or 17%, year-on-year drop to 5.8 million head for 2017.”

Thomas said the reduced slaughter numbers had led to a downward revision of export forecasts, with an expected 7% drop in lamb shipments for 2017, to 225,000 tonnes shipped weight (swt) – 5,000 tonnes swt lower than forecast.

The US, China and the Middle East are expected to remain the major export markets.With 2.7 million less sheep and lambs set to be processed year-on year, Thomas said the short supply would keep prices buoyant for the remainder of 2017.

"The current combination of factors in the market will lead prices to average alongside, or even exceed, the previous records,” Thomas said.

“Despite the buoyant market, there is a concern around the sustainability of the current price levels further up the supply chain, with some recent temporary closures of processing facilities.

“The risk for producers is once the number of sheep and lambs available for processing do recover, and if processing capacity remains reduced, there is the potential for a greater correction in prices than otherwise would have been the case.

“However, producers can be cautiously optimistic about prices beyond 2017, which will largely be determined by the rate of flock recovery and the extent to which processing capacity reduces.”