SHEEP producers can remain optimistic for the next 12 months, according to the latest forecast from the Meat and Livestock Commission.

Jane Connor, senior economic analyst, believes lamb supplies will remain relatively tight throughout 2003, indicating that prices will continue to stay firm.

Import supplies are less threatening and quiet optimism prevails over rebuilding the export market.

Sheep meat prices climbed last year to the highest since 1997, bringing a welcome boost to producers' returns.

The trend was mainly attributed to reduced supply after foot-and-mouth, which cut the UK sheep breeding flock by 13pc. Last year's slaughterings amounted to 13m head, down 18pc or nearly 3m compared with the last "normal" year before foot-and-mouth.

Recovery of the national flock so far appears only modest, amounting last year to an estimated 3pc-4pc.

Retention of ewe lambs is estimated to have been higher than normal in 2002, confirming producers' intentions to restock, but a large number of those animals have yet to enter the breeding flock.

Producers held back many of these lambs to cover SAP quota and they may enter the breeding flock after the 2003 autumn sales. A similar retention rate for ewe lambs is forecast for the coming year, once again reducing potential numbers for slaughter.

The overall impact of restocking is forecast to increase sheep meat supplies in 2003 by 5pc on the previous year, and for the breeding flock to edge just over the 16.5m mark, compared with 18.5m in 2000.

On the export front, sheep meat trading recovered in 2002 to about 60pc of pre-foot-and-mouth levels.

Lack of supply, combined with weak French market prices, restricted trade from developing further. Prospects for 2003 are, however, brighter.

A steady Continental demand for UK sheep meat and the slight increase in availability of supply together with recent favourable developments in the exchange rate all lead to the conclusion further export gains will be made.

In addition, declining Irish supplies will reduce competition for the French lamb market, although Spain could continue to be a major competitor mid-year.

As far as imports are concerned, traditional supplies of lamb are set to remain down on pre-foot-and-mouth volumes as New Zealand, in particular, continues to focus on expanding its market share in mainland Europe.