Month: November 2017

A number of mixed market signals this week across state saleyards for sheep and lamb, as the seasonal Spring price decline looms. Needless to say, on a countrywide level all categories posted price increases between 0.2% to 3%, apart from Restocker Lambs with the national saleyard indicator off 1.2% to 679¢/kg cwt.

The Eastern States Trade Lamb Indicator (ESTLI) was up 1.3% to 628¢, a gain mirrored by the National Mutton Indicator which staged at 1.4% lift to 422¢/kg cwt. Victoria was the only state to show significant increases to lamb throughput this week, with a 12% rise in yardings to see over 83,000 head recorded – Figure 1. All other states registered flat to lower lamb throughput with the East coast lamb throughput tracking sideways.

This was not the case in the West, as producers responded to last week’s drop in trade lamb prices to see WA lamb yardings off 23% – Figure 2. The tighter numbers are giving the Western Australian Trade Lamb Indicator a boost, up 18.5% to 520¢, although it is still sitting over $1 below its East coast counterparts.

Mixed signals were received in mutton markets too this week as higher East coast sheep throughput unable to dampen prices, signalling demand remains firm on the Eastern seaboard. The East coast saleyards reporting a 20% lift in numbers to 84,600 head, buoyed by higher mutton yardings across all of the Eastern states – Figure 3. In contrast, WA mutton markets are showing a textbook response to higher mutton supply, with yardings up 22% and the WA mutton indicator off 2.3% to 304¢/kg cwt.

The week ahead

It’s not uncommon to get mixed signals as markets begin a change in trend. Certainly, the increasing lamb throughput for Victoria has a way to play yet, as we sit about mid-way through the Spring flush. The seasonal supply boost as we head toward Summer should start to weigh on the ESTLI in the next week or two, particularly as it begins to dry out in the south.

The rainfall pattern expected for the week ahead broadly replicates what we saw last week, although slightly lighter falls are expected for NSW while SA and Eastern Victoria are set to benefit from a bit more moisture.

Sheep and lamb yardings had another strong week, with Victorian lambs starting to run. Yet prices continued their solid reluctance to fall, maintaining levels well above last year in the east. Things are easing in the west, but also remain better than last year.

Figure 1 shows east coast lamb yardings for the week ending the 27^th, and individual yardings suggest that Victorian lambs are starting to hit the market. Ballarat yardings were up to 40,500 head, while Bendigo remained strong at 34,000 head.

Usually the Victorian lamb run is what pushes yardings higher in November and December, but now it is just adding to already above average yardings in South Australia and NSW. Yardings in WA jumped 41% higher, and are well above normal for this time of year (figure 2).

Higher yardings in WA saw the West Australian Trade Lamb Indicator (WATLI) fall sharply, losing 44¢ to 521¢/kg cwt (figure 3), a nine month low. Despite being lower, the WATLI is 80¢ stronger than this time last year, even with higher yardings.

Last year the ESTLI followed the WATLI lower, after about a month delay. We keep saying we expect the ESTLI to ease in the spring, but there is only a month of spring left, and prices remain strong.

Mutton markets were the star performers this week, with the Victorian Mutton Indicator moving back to 450¢/kg cwt, and NSW not far behind. In contrast SA mutton is lagging around $1/kg cwt behind, or $20 on a 20kg cwt Merino. This suggests that supply in SA is starting to outstrip slaughter space in SA.

The week ahead

We keep saying the ESTLI can’t defy gravity for too much longer; and with cheap lambs in WA, export demand might start to come under some pressure. Last year we saw that the market declined 60¢ from the start of November through to Christmas as supplies ramped up.

Demand is stronger this year, and a 60¢ decline would see markets still at historically strong levels, but price will make current January forward contracts look attractive. More on this next week.

Trade Lamb prices are continuing to defy gravity, and carrying other categories along with them.  Store lamb prices are at record highs for October, and some forward contracts have just been released.  The equation is pretty simple for January, when prices can be locked in, with profits likely to be smaller for lambs sold in December.

The recent strength in lamb prices has restockers starting to get a bit excited.  Figure 1 shows a strong rally in the National Restocker Lamb Indicator last week, as it sits at 699¢/kg cwt.  In dollar per head terms the indicator is sitting around $105 per head.

There is usually plenty of variability in the restocker price in ¢/kg terms, as the average weight can change week to week, and sometimes this doesn’t impact the dollar per head price as significantly as it would for trade or heavy lambs.

Restocker lambs are now at a record level for this time of year, and sitting around 90¢, or 15% above the same time last year.

If we assume trade lambs weigh 20kgs cwt, and restocker lambs 16kgs, and skin values is the same, the spread between restockers lambs and the ESTLI in dollars per head is shown in figure 2.  The ESTLI premium has been creeping lower, and at the end of last week sat at $12.4/head.  Basically this means 20 kg cwt trade lambs were making just $12.4 more than 16kg cwt restocker lambs.

Generally a narrow spread between restocker and trade lambs is driven by abundant feed, as producers opt to hold lambs in favour of weight gain, forcing store buyers to pay more.  So the question is whether there is any money in buying lambs are current prices.

Figure 3 shows some rough numbers on buying lambs at current prices, and selling at our worst, expected and best case price scenarios.  Finishing on grass, and getting the current trade lamb price will provide a pretty good return, which is what buyers are banking on.

What does this mean?

Getting the current price of around 630¢ would be our best case scenario, as we think there will still be a flush of lambs, and lower prices in December.

Our expected price for December is 580¢, which is likely to be close to break-even after costs are taken out, while a loss will be made at last year’s December price of 520¢/kg cwt.  Obviously it is hard for those feeding lambs at the moment, with store lamb prices, grain prices and finished lamb prices not really stacking up unless prices continue to rise.

Just yesterday forward contracts were released for January ranging from 580¢ to 630¢.  If lambs can be carried that far on grass then a profitable outcome should be able to be locked in now.