Australia’s sheep industry is heading into 2026 with tighter supply and reduced flock-level flexibility, particularly across southern production regions.

The national flock is forecast to decline 2.7 per cent to 67.1 million, reflecting ongoing seasonal pressure and several years of elevated turn-off.

For producers, the key takeaway is that rebuild options are likely to remain limited in the short-term.

Dry conditions across Victoria, SA, Tasmania and southern NSW continue to weigh on pasture availability, fodder reserves and confidence. While recent rainfall has offered some relief in parts, many producers remain cautious around stocking rates, retention and replacement decisions.

This caution is reflected in the 2026 slaughter outlook.

Lamb slaughter is forecast to fall 11 per cent to 21.86 million, while sheep slaughter is forecast to decline 30 per cent to 7.13 million. This points to a smaller pool of available stock and a slower pathway to rebuilding.

Heavy turn-off in recent years – including breeding females – has reduced the industry’s immediate ability to lift numbers.

On farms, this means flock decisions will hinge on seasonal confidence. Producers with tight feed supply may weigh up whether to retain breeders, sell earlier, or adjust their enterprise mix to manage risk and cash flow.

In many regions, meaningful flock rebuilding is unlikely until feed conditions improve more broadly and consistently.

Production is expected to remain relatively resilient despite reduced slaughter, supported by continued gains in average carcass weights. Lamb production is forecast to ease 10 per cent to 537,000 tonnes carcass weight, while mutton production is expected to fall 29 per cent to 184,770 tonnes.

This underscores the value of finishing systems that maintain performance when numbers tighten.

Sheep feedlots are becoming an increasingly permanent feature of the Australian sheep industry. While they remain less formalised and less advanced than the cattle feedlot sector, there is a clear shift toward more professional and structured feeding systems, alongside a growing prevalence across the industry.

Producers are increasingly investing in containment feeding infrastructure to manage animals during dry conditions. This typically includes the use of self-feeders and smaller, contained paddocks designed to maintain condition and improve control over nutrition.

At the same time, there is a rise in larger, more professional feedlot operations, with some businesses now turning off more than 100,000 annually.

The expansion of lot feeding is delivering several benefits to the industry. It is helping to smooth seasonal and highly variable (‘lumpy’) supply patterns – providing a more consistent flow of finished stock to processors.

Containment feeding systems are also allowing producers to wean lambs earlier and better manage pregnant ewes, supporting improved fertility outcomes and overall flock productivity. Sheep lot feeding is also contributing to heavier carcass weights and will continue to do so going forward as it is established as a proven sales channel.

A requirement for lot feeding to become engrained as a long-term option, is a shift away from sheep producers not tending to market or sell lambs as stores.

A key challenge for the sector is the lack of comprehensive data around sheep lot feeding. Much of the current understanding of sheep lot feeding is based on anecdotal evidence rather than formal measurement.

However, available survey data indicates that at least 23 per cent of sheep receive a minimum of 35 days of exclusive grain feeding prior to sale, highlighting the growing importance of supplementary feeding in production systems.

This points to a clear need for further data collection and analysis to better understand the grainfed sheep sector.

Ongoing improvements in genetics, grain feeding, containment feeding and demand for heavier lambs will continue to support this trend.

Wool is also re-emerging as an important part of the production equation. Stronger wool prices are improving returns from Merino enterprises, potentially encouraging producers to retain sheep where conditions allow.

For Merino and mixed-enterprise operations, this shift could increasingly influence flock structure and retention decisions over the next 12 months.

Finished lamb prices are expected to remain firm, though restocker demand may stay softer if seasonal conditions remain uneven.

The outlook suggests 2026 will be a year where management matters as much as market direction. Feed budgeting, protecting core breeders and targeting weight and market specifications are likely to be more important than chasing volume.

Overall, 2026 is shaping up as a year to protect flexibility. Tighter sheep numbers and mixed seasonal conditions are likely to keep rebuild decisions cautious, while strong finished markets continue to reward weight, timing and meeting specification.

Businesses that manage feed carefully, retain productive breeders and maintain finishing performance are likely to be better placed to respond when seasonal confidence lifts.