A ‘perfect storm’ is driving down lamb prices in the UK

UK lamb prices recently hit their lowest level since early 2013 and several factors add up to a ‘perfect storm’ that are driving down prices.

Lamb prices are at their lowest for the time of year for six years, according to AHDB the organisation for the English beef and sheep industry.

Lamb prices, at times it says, have been over £20/head lower than a year earlier.

It says that normally, prices for lamb peak in the spring at the start of the new season, but this year they have been falling since Easter.

This means that farmers who were selling lambs early in the season will have been particularly badly affected, it says.

However, AHDB says that as we head towards the peak season for lamb production prices remain much lower than normal.

There are a combination of factors involved in pushing prices lower and AHDB says that they add up to a ‘perfect storm’ for the lamb market and one which could continue for some time to come.

Exchange rate

According to AHDB, one key factor is the exchange rate between the Pound and the euro.

Historically, lamb prices have been closely linked to the value of the euro because up to 40% of UK lamb is exported, mostly to the rest of the EU, it says.

On average, AHDB says a 1p fall in the value of the euro means a drop of about £1 in the value of a lamb and with the euro worth nearly 10p less than a year ago, it could account for half the fall in the lamb price.

To illustrate the impact, AHDB says that if the UK lamb price was at its current level in euro terms, but the value of the euro hadn’t changed since last year, the Sterling value would be only slightly lower than a year ago.

Export trade

The French market takes around 50% of UK lamb exports and problems at Calais in France have been delaying shipments to the market, it says.

AHDB says that some exporters are having to reroute shipments via longer, more expensive routes.

In addition, high profile protests by French farmers are likely to be influencing consumer demand against imported food, including lamb, it says.

Both these issues could erode the export price further, it says, with an inevitable knock-on effect on the UK lamb price.

In any case, consumer demand on EU export markets has been weak so far this year as the economic problems of the Eurozone rumble on, according to AHDB.

Retail purchases of lamb in France were down 10% in the first five months of the year, with demand particularly weak since Easter, it says.

Domestic market

In the first half of 2015, AHDB says that lamb slaughterings were 6% higher than the year before, following favourable weather conditions last year.

With conditions similar again, another bumper lamb crop is expected this year, which means that the number of lambs is forecast to remain high for the rest of 2015, according to forecasts from AHDB Beef and Lamb.

If anything, the year-on-year increase may be even higher in the second half of the year, it says.

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