Sheep finishers took a bit of a knock this week, with prime old season lamb prices falling significantly on the previous seven days, primarily on the back of increased numbers in the market place.

On Monday, the SQQ for old season lambs sold in live markets throughout Scotland dropped a massive 14p per kg to 254.2p, for 5060 head – up 12.2% on the week – with the overall average cashing in at 251.5p, down 13.3p.

Prices on Tuesday improved slightly, with an SQQ of 257.4p, which is 6.4p down on the previous week, and an overall average of 254.1p, -6.7p.

While values remain 30% higher than the five-year average, prices are nevertheless almost 20p per kg below the 275p per live kg average throughout November and December.

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On a more optimistic note, Defra has reported that UK sheepmeat production fell by 10.5% last year, having fallen 4% in 2020. Furthermore, high farmgate prices are traditionally driven by tight supply caused by reduced domestic production and imports, thereby values should improve in the coming months, especially when Easter is late.

According to Quality Meat Scotland senior economics analyst, Iain Macdonald, hoggs spiked at a similar level early January last year, averaging 255p per kg.

He also added that HMRC figures show sheepmeat import volumes fell by 16% in the January to October period, having fallen for seven straight calendar years.

Although reduced exports will have offset some of the decline in total market supply, adjusting production for net trade suggests that overall supply could have fallen by 9% in 2021 and around 14% below the five-year average.

In addition to tight supply, firm demand has added to the upwards pressure on farmgate prices, with data from Kantar indicating that GB households spent nearly 3% more buying fresh lamb in the 52 weeks to Boxing Day than a year earlier. This was despite the stronger return to dining out through the summer and autumn of 2021 plus significant price inflation.

Spending was also 12.5% higher than in 2019. Meanwhile, exports recovered as a share of production in the autumn.

While import volumes fell further in 2021, New Zealand lamb has been on the shelves, particularly in the run up to Christmas.

“Pre-Christmas data from Kantar indicates that retail demand rebalances towards leg roasts and that as import penetration increases, retailers look to meet the higher demand for this cut.

"It should however be noted that if domestic production was to rise to meet this higher level of demand for leg roasts, processors could be left with a significant challenge of carcase balance,” Mr Macdonald said.

UK trade data shows imports tend to rise seasonally in November and December from an annual low in October, and at a time when new season supply is building in the Southern Hemisphere.

In the 2016-20 period, imports in December averaged around 26% of total market supply, slightly above the annual average of 25%. While well above the annual lows of 16-17% between August and October, it was well below the pre-Easter high of 36-37% in March and April.

However, in 2021, despite rising ahead of Christmas, imports may have struggled to reach 20% of total market supply in December, having dropped as low as 11% of supply in October.

With a free trade agreement between the UK and New Zealand in the final stages, imports from NZ have been a prominent discussion. However, the volume of sheepmeat imported from NZ in 2020, had fallen to only 38% of the post-EU quota level.

Based on an estimated 11% reduction in imports in carcase weight equivalent during the January to October period, the quota fill-rate could have fallen to as low as 34% in 2021.

Looking towards early 2022, Mr Macdonald said history would suggest imports could take up a slightly reduced share of the market in January and February, before picking up in March and peaking in April, when Easter falling in mid-April.

"New Zealand is expected to produce 1% more export lambs this season, but strong prices in China mean there is unlikely to be a recovery in sales to the UK."

With the UK lamb crop falling by 1.6% in June 2021, and lamb slaughters down 11.4% a year earlier between June and December 2021, an increased carryover of hoggs into 2022 could boost the market share of domestic product this spring.