The agribusiness bank says this means future production growth will likely need to come from productivity improvements for the sector to capitalise on the world’s growing appetite for Australian sheepmeat and wool.
With Australia, the world's largest exporter of both sheepmeat and wool, the report says the country’s sheep flock has contracted to its second-lowest level in more than 100 years in 2026.
While sheep and lamb prices have reached record highs and wool prices moved back to historical high levels not seen since 2019, a significant expansion of flock numbers remains unlikely due to ongoing structural challenges.
Report author, RaboResearch senior animal proteins analyst Angus Gidley-Baird, said strong global demand, limited competition and constrained supply have created some favourable market conditions for the sector.
The report notes flock numbers have fallen from a peak of 180 million head in 1970 to about 66 million head today.
Mr Gidley-Baird said several factors were continuing to limit flock expansion.
Modelling suggests the Australian breeding flock could increase by about six per cent between 2026 and 2030 under an average seasonal scenario.
The report says global demand for sheepmeat and wool is expected to grow, driven by increased consumption, with Australia to benefit.
The report notes that global imports of sheepmeat are projected to rise by more than 70,000 tonnes between 2026 and 2031, while key exporting nations are not expected to significantly increase exportable supply.
Analysis indicates lamb prices should remain strong across the next year, supported by constrained supply and ongoing demand growth.
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