Australia's national sheep flock is projected to drop to its lowest level in 116 years, but it is hoped recent rain will help with the recovery in the years ahead.
In its projections for 2020, Meat and Livestock Australia said the country's sheep flock would fall to 63.7 million due to drought conditions that have forced producers to offload core breeding stock.
That number is a little more than a third of what the national sheep flock was in the 1970s, when it hit 180 million, and MLA's Senior Market Analyst Adam Cheetham said the decline comes as producers transition from a wool production-based flock into lambs.
"In the past two years, the drought in northern Victoria and NSW has pushed the number of sheep down by seven million," Mr Cheetham said.
"Sheep and lamb slaughter rates are forecast to decline by as much as 22 per cent, as water and feed availability have created heightened pressures for farmers.
"However, carcase rates are forecast to increase due to the growing prevalence of supplementary feeding and the strong price incentives to finish lambs at heavier weights."
Commodity prices for lambs, mutton and wool have remained relatively strong during the drought, while rain in some areas has boosted confidence in the year ahead.
"With the expectation of decline in supply during the winter months, we would expect to see sheep and lamb prices remain at historically high levels," Mr Cheetham said.
"Given the prolonged drought, the surprise has been how prices have held up, with a lot of that coming with demand from our export markets."
Bernie Byrnes' property in Gunning, in the NSW Southern Tablelands, received more than 130mm of rain in early February — a break he sorely needed after three years of drought.
"The really good situation that some sheep producers are in is due to stock prices being so high," Mr Byrnes said.
"If you've had to destock, it's not a bad time to be selling due to the kind of numbers you can get at the saleyards.
"I wouldn't like to be completely destocked, because we are at historically low sheep numbers in this country and the stock have to be bred up from somewhere."
Merino producer Charles Knight held on to 8,000 breeding ewes on his property, north of Gunning, during the drought.
"The season has taken a quick, positive turn thanks to the rain we have received already this year," he said.
"We have been getting about 60 per cent of our average rainfall, but producers who have done the hard yards for the last three years and maintained their stock numbers are now well situated."
Mr Knight said while there are variables at play, the outlook for the sheep industry remains positive.
"Given the low stock numbers, the strong demand for Australian sheep products from overseas shows the upside is looking bright," he said.
"We just need the season to run with us."
Rebuilding sheep numbers
Meat and Livestock Australia projects numbers to increase by 13 percent in the next three years, with the flock projected to hit 72 million by 2023.
That would require a return to more average rainfall to allow for pasture growth, and for producers to be able to rebuild their stock numbers.
"The worry with the national flock being so low is that we could begin to lose market share," Gunning sheep producer Matthew Hewitt said.
"I can't see the sheepmeat market going anywhere though because there is such low supply already."
Lamb exports from Australia increased by 5 per cent last year to 282,000 tonnes, while sheepmeat exports to China soared by 42 per cent to 152,700 tonnes.
Mr Hewitt said producers are confident the national flock will rebuild and begin to increase again.
"It's going to be a slow job because a lot of sheep have been killed lately," he said.
"It'll take time, but with the rain and the high commodity prices, there's a lot of confidence around that we're well set up."ABC