In a surprising development reported by CNBC, some Australian farmers are now giving away sheep for free.

This situation arises from a significant surplus in the mutton market, which has led to a dramatic 70% drop in prices over the past year, reaching just $1.23 per kilogram, according to Meat and Livestock Australia (MLA) data cited by CNBC.

Tim Jackson, an MLA global supply analyst, explained to CNBC that Australia’s sheep population has soared to 78.75 million, the highest since 2007. This increase is attributed to several years of favorable weather conditions, including above-average rainfall in key sheep-rearing regions like New South Wales and Victoria, which have been ideal for grass growth and, consequently, sheep feeding and breeding.

CNBC reports that Andrew Spencer, chairman of Sheep Producers Australia, conveyed via email that the prolonged market buoyancy and consistent rainfall encouraged farmers to retain more sheep than usual. However, this has led to a significant reduction in profitability for farmers, as noted by Steve McGuire, vice president of the agricultural advocacy group WAFarmers, in his comments to CNBC. McGuire highlighted the dilemma faced by farmers, who are now considering culling or giving away their sheep due to the lack of market demand.

According to CNBC, Australia’s sheep flock is expected to grow by 23% from its 100-year low in 2020, based on MLA statistics. This oversupply has reversed the trend of record mutton prices experienced by farmers three years ago. The current situation is exacerbated by the need to feed a larger flock for a longer period, especially as weather conditions have worsened this year.

The Australian Bureau of Meteorology recorded its driest September recently and predicted continued hot and dry conditions due to El Nino and a strong positive Indian Ocean Dipole event, as reported by CNBC. This adverse weather is anticipated to reduce feed supply, prompting farmers to reduce their flocks, including sending more livestock to slaughterhouses and meat processors.

However, meat processing facilities are struggling to handle the high volume of sheep, partly due to labor skills shortages and a backlog of unprocessed stock from the previous year, as stated by Matt Dalgleish, co-founder of agricultural consulting firm Episode 3, and McGuire from WAFarmers, in their statements to CNBC.

CNBC’s report also touches on the global implications of Australia’s sheep surplus. As the world’s leading producer and exporter of sheep meat, the oversupply has put downward pressure on global wholesale prices. Despite the fall in sheep prices, the retail discount has not been fully reflected, with major Australian supermarket chain Woolworths Group announcing a 20% price cut on lamb products.

The export of sheep meat reached a record high in October, indicating that the meat is gradually moving through the market, despite a significant backlog. McGuire anticipates further reductions in mutton prices for consumers both in Australia and internationally, as he told CNBC.

In response to these challenges, some farmers are considering not mating their ewes to cut costs, which could lead to a rapid shift from oversupply to undersupply in the sheep market. A recent survey by the National Farmers Federation, as reported by CNBC, showed that over 60% of Australian farmers surveyed felt less positive about the future of farming compared to a year ago, reflecting the uncertainty and challenges in the industry.

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