Category: Lamb

It has been a decade since the Sheep’s Back to Mill was updated. The Sheep’s Back to Mill publication is a record of the cost of harvesting, testing selling and shipping greasy wool in Australia to overseas mills. One of the components of this publication is the proportion of the wool clip which passes through rehandles/bulk class facilities. This article takes a look at wool preparation in the clip, which in turn determines how much wool passes through rehandling facilities.

The latest Sheep’s Back to Mill (for 2009-2010) is available here. Traditionally this publication develops the cost of rehandle (‘bulk class’) by using the AWTA fee applied to the proportion of the clip sold in this manner. This method underestimates the cost of putting wool through a rehandle.

There is often a mismatch between the grower being paid out on rehandle wool and when the rehandle wool (which is aggregated with like wool from other growers) is sold. For this reason and the extra work involved, the broker will make a margin on the rehandle wool. It is a grey area that is not transparent and rehandles are profit centres in the broking business, so the less wool put through rehandles the better for growers. The counter-argument is that farmers can end up with parcels of wool (bags and butts) which are not large enough to make up a sale lot. Such small lots are legitimately aggregated into sale lots in good rehandles.

At Australian auction sales, wool is offered with an IWTO approved test certificate which shows the wool preparation standard for the lot (commonly known as the ‘cert type’). Table 1 shows the proportion of wool sold (clean basis) at auction during the past eight seasons by ‘cert type’. P certificate wool is a classed grower lot that meets the AWEX Code of Practice (COP) standard while the D certificate is a grower lot that does not meet the AWEX COP. I stands for Interlot wool. The Q and B suffix denote wool which has gone through a rehandle. Q certificate wool meets the AWEX Code of Practice while B certificate wool does not. Table 1 shows that between 10% and 11% of the Australian clip sold at auction passes through rehandles.

Figure 1 provides a breakup of wool sold at auction in 2018-19 by breed on a clean basis. Merino (and superfine) accounted for 78% of wool sold while crossbred accounted for 21%. Downs, carpet and other categories (such as runs with) accounted for 1% of the sales volume.

Table 2 breaks each breed up by wool preparation category. Some 7.6% of Merino wool (nearly 8 bales in one hundred) was processed through rehandles, with 17% of crossbred wool handled through rehandles. Note also the low level of P wool preparation standard for crossbred (45%) which reflects the decline in the standard of crossbred wool preparation in recent years.

What does this mean?

Some eight bales in one hundred of the Merino clip are processed by rehandles, which as an average seems high. Rehandles are not a charity – they have a cost. Marketing begins on the farm with judicious packaging of wool for sale, which meets the AWEX Code of Practice, not in Paris or Milan.

Mixed signals for the lamb market this week as the spring flush appears underway in South Australia, but Victorian volumes still sheepish. Speaking of sheep, mutton prices are holding up resolutely in the face of elevated volumes at the saleyard and at processors.

East coast lamb prices reported by Meat and Livestock NLRS shows a 12¢ lift for the Restocker Lamb indicator to see it close at 820¢/kg cwt, underpinned by a big lift in SA Restocker prices which posted a 75¢ gain to 952¢. East coast Trade and Heavy lambs easing 15¢, with softer moves reported in Victoria and NSW for these two categories, to see them finish at 744¢ and 739¢ respectively.

Lamb prices in SA holding up reasonably well across categories this week with Heavy and Merino Lamb the only types to register a negative, and a small one at that, down 1¢ and 2¢. A good result for SA lamb producers considering the recent trend in yarding numbers show that they are amid their spring flush – Figure 1.

The wet week in Victoria seemingly taking some of the steam out of lamb yarding numbers there though, with weekly sale yard volumes easing back toward 50,000 head recently. Lower Victorian lamb numbers pushing the broader east coast lamb yarding levels to 175,000 head, 18% under the seasonal average for this time in the year.

East coast sheep yardings have softened during early November but they are coming off very high historic levels so they remain above the upper end of the normal seasonal range that could be expected for this time in the year and 30% over the five-year average trend– Figure 2.

East coast sheep slaughter remaining at elevated levels too at the top end of their normal seasonal range and running 16% over the five-year seasonal trend – Figure 3. Despite the high sheep supply east coast mutton prices are holding firm, posting a 9¢ lift to close yesterday at 590¢/kg cwt.

Next week

Limited rain is on the horizon in the coming week, even for Victoria which has been quite blessed in the lead up to summer. Late November/early December usually sees a significant lift in lamb volumes at the saleyard as the spring flush hits full throttle so there is likely some further pressure to be applied to lamb prices in the short term.

There was no real impact from the rain this week in sheep and lamb markets, with a cautious approach seemingly being taken. There was also the issue of the three month outlook and continued strong supplies.

Figure 1 shows sheep supplies in saleyards have been running well ahead of last year’s levels, and the five year average. Sheep yardings are rarely above 100,000 head but it hasn’t really dampened the price at all.

The National Mutton Indicator (NMI) managed a small lift this week, despite the strong supplies.  Figure 2 shows the NMI is a touch under 550¢, largely being propped up by Victoria where mutton is making 594¢/kg cwt.

Lamb markets were also steady on the east coast, as the spring flush of lambs stalled. NSW remains at a solid premium to other east coast markets, at 777¢ vs 735¢/kg cwt in Victoria and SA.  On the west coast, lambs are a long way behind the east coast.

Figure 3 puts the Western Trade Lamb Indicator (WATLI) at 632¢/kg cwt as lamb supplies continue to flow. The WATLI is, however, at a historically strong price for this time of year, and has plenty of upside.

Restocker lamb prices continued to fall this week, with the rain having little impact on the expected trend. As we draw closer to summer, declining feed reserves will continue to put pressure on restocker values. That is, of course, if rainfall doesn’t see feed reserves improve in a hurry.

Next Week.

The three month rainfall outlook isn’t great for most areas, and given the length of the drought, no one is ready to jump in just yet. Lamb supplies should continue to edge higher, but sheep supplies could easily contract, whether it rains or not. There might be a little further downside for lambs, but it looks like support for sheep is here to stay, and that should put a floor under lamb values.

As reported last week, sellers have been prepared to step out of the market when demand is weak, and this week the high pass-in rate told the story of the wool market performance.

There is no doubt that demand is not great right now, however, if the supply was not lightened by the high pass-in rates in the weeks where the market retreat, we could well be seeing bigger falls and greater fluctuation. It is hard to quantify the effect this grower response is having, but it must be supportive for the market.

This week the Eastern Market Indicator (EMI) lost 39 cents (after rising 77 cents over the last 2 weeks), to close at 1555 cents. The Au$ fell over 0.5 cents to US $0.686, causing the EMI in US$ to also fall 36 cents to 1,068 cents. The WMI also fell, albeit with a stronger finish in Fremantle (with a gain of 10 cents on Thursday), however for the week the loss was 25 cents for a WMI close of 1662 cents.

As the three-week run of improving markets came to an end, so too did the single-digit pass-in rates, – sellers again deciding to hold wool back on a falling market. This week the PI rate was 17.5% nationally. As a side note, almost 25% of Merino Fleece wool nationally was passed in on Thursday; in the West almost 26% of the offering was passed.

Sydney seemed to struggle to find a footing all week, with a specialty fine wool sale unable to inspire, although buyers selectively bid on wool with good measurements. Melbourne and Fremantle reported a positive tone towards the end of selling on Thursday, no doubt supported by firm grower reserves limiting sales.

There was a slightly smaller offering of 34,084 bales, just over 4,000 bales fewer compared to last week’s volumes. The high pass-in rate meant that there was also a big drop in in the number of bales sold, over 6,000 fewer compared to last week at 28,112 bales. The supply shortfall continues, with 105,884 fewer bales sold compared to the same period last year. This equates to an average weekly gap of 6,617 bales since July.

The dollar value for the week was $48.84 million, with a bale average value of $1,737, down $87 per bale on last week. The combined value so far this season is $726.90 million.

AWEX reported that the Crossbred and Cardings sections were not spared and gave up significant ground, however, a mild recovery in the Cardings in Fremantle was in line with the generally positive close to the week.

The week ahead

Next week an increased offering is listed, with 38,500 bales across the three centres.

We have been taking the lead for the upcoming week based on the closing sentiment in Fremantle, so we have a cautiously positive outlook for next week.

Sheep and lamb markets continued to slide this week, with supply ramping up. We don’t know what happened with yardings and slaughter this week yet, but last week sheep slaughter was heading higher.

Figure 1 shows sheep slaughter on the rise, well above average levels and heading towards last year’s extraordinarily strong

rates. Improving supply of sheep, and to a lesser extent lamb, has put a dampener on prices.

The Eastern States Trade Lamb Indicator (ESTLI) fell 12¢ to 760¢/kg cwt (Figure 2), a six month low.    Figure 2 shows NSW Mutton prices fell more heavily, losing 34¢ to 550¢/kg cwt, but they are doing a bit of a yo-yo at the moment, having gained a similar amount a fortnight ago.

In Victoria, Mutton prices held around 600¢, as while supply is increasing, demand for mutton is supporting prices.

Store sheep markets are running hot. With young ewes making well over $200 per head and ewes with lambs reportedly making over $400, it appears restockers are getting in before the anticipated price rise.

The price rise could come sooner rather than later.  At least markets should steady with the rain on the forecast over the coming week. There might not be many sheep left in NSW, but the rain will see any that might have been sold being held. It will be hard for sheep slaughter to keep rising.

WA sheep and lamb markets continue to lag well behind the east coast. This isn’t unusual for this time of year, with the season finishing. Demand from across the Nullabor might add some support if the rain keeps coming.

Next Week:

There were some strong forward contracts released for Northern NSW yesterday, with lamb at 820¢ and mutton over 600¢ in January. These prices are ahead of current rates, but if the forecast rain falls, and is followed up, we could get there a lot quicker.

Significant increases to yarding levels for both lamb and sheep across the eastern states in recent weeks has started to weigh on prices. Higher than average lamb yarding was noted in Victoria but the big lift in lamb throughput was reserved for NSW. Mutton yarding levels were elevated in all east coast states.

Weekly east coast lamb yardings levels hit a seasonal high last week at 231,591 head representing a 64% jump on the week prior. This places lamb yarding levels 16% above the five-year seasonal trend for this time in the year (Figure 1).

Lamb throughput in Victoria is trekking 9% ahead of the seasonal average but underpinning the jump in east coast lamb volumes at the saleyard has been NSW flows. Lamb yarding for NSW last week was up 48% on the week prior and is sitting 31% higher than the five-year average trend at 142,305 head.

Increased throughput wasn’t reserved for lambs alone with mutton numbers swelling too. Weekly east coast sheep volumes at the saleyard up 79% on the previous week to hit a seasonal high at 139,169 head. At this level east coast sheep yardings are sitting at massive 94% above the five-year seasonal average and you would have to go back to 2006 to find a higher weekly east coast sheep throughput level (Figure 2).

Higher than average sheep yardings were noted across all east coast mainland states with SA 42% above the five-year level, Victoria 51% higher and NSW, again underpinning the broader east coast figures, with sheep yarding levels 135% higher than the seasonal trend for this time in the year. Figure 3 shows the combined lamb and sheep throughput for NSW and it demonstrates how unusual this increase in saleyard volume is.

The National Trade Lamb Indicator (NTLI) feeling the brunt of the increased supply easing 4.2% this week to close at 770¢/kg cwt yesterday. Unsurprisingly, NSW Trade Lambs were lower too, slumping 4.8% to finish at 783¢/kg cwt. The National Mutton Indicator (NMI) eased 2.1% this week to 555¢/kg cwt. NSW mutton prices holding up well considering the elevated supply in recent times, dipping just 2.2% to close at 577¢/kg cwt.

Next week

The Victorian spring flush is underway but the significant numbers we see into November are yet to come. There is some rain forecast for Victoria this week which will allow producers to hold lambs for a bit longer if they are keen. Prices favour a downside bias until some of the Victorian supply is able to be accounted for.

There has been plenty of commentary around the spring rally in mutton prices and last week we saw the unusually strong prices almost hit a record in Victoria. Sheep markets have rarely been stronger and normally it’s the price low that we see at this time of year. So should growers be selling ewes rather than lambs?

The credit for rising mutton prices has been squarely placed with Chinese demand. Increasing demand can be the only answer when we see price rises like the one shown in Figure 1.  The 10% rise in the Victorian Mutton Indicator from the low has been accompanied by an 11% increase in slaughter. Rising supply and rising prices equals stronger demand.

The Victorian Mutton Indicator is 61% stronger than the same week last year. That is more easily explained by supply, with east coast sheep slaughter down 22.5% on September last year.

The relative price of mutton has also hit some milestones. The Victoria Mutton Indicator last week moved to just a 23% discount to the Eastern States Trade Lamb Indicator (ESTLI). Mutton hasn’t been this close to lamb since May 2018, although it was in October 2016.

Figure 2 shows the steady ESTLI and rising mutton price has the spread at levels well above the normal range for this time of year.

As we move towards the end of spring and paddock feed supplies start to dwindle, sheep producers will start looking at what to sell. We know that sheep and mutton both have further potential upside, but it looks like there might be more upside in lamb.

Lamb prices averaged 10% higher than current prices in May, June and July, while mutton values have rarely been higher. Cast for age ewes are very good selling at the moment, as are lambs, but there is likely more upside in young stock than old. This is especially the case for young female stock when the drought breaks.

What does this mean?

Strong mutton prices make selling decisions relatively easy this year. Older ewes might have another 5% upside in the meat market but lambs are more likely to rise, and will rise further.  In order to conserve feed, any older ewes which are left can be cashed in, and efforts concentrated on finishing lambs or getting ewe lambs up for joining. Young ewes are going to be the real winners when it rains.

Seeing all red on the Eastern States Daily Indicator Report for weekly sheep and lamb movements has been a rare occurrence recently.  This week finally saw enough stock come to market to send prices lower.

Week on week falls in sheep and lamb prices weren’t huge, but the Eastern States Trade Lamb Indicator (ESTLI) did hit a five-month low, breaking under 800¢ for the first time since May (Figure 1).  The ESTLI isn’t far off where it was after a brief spike in October last year, but it has found plenty of support around this level.

Merino lambs were the heaviest hit in terms of falls, the east coast indicator lost 44¢ to hit 716¢.  The Merino lambs seem to be coming in NSW, where they are 707¢, while in Victoria they are stronger, at 751¢.  This is the opposite spread of trade lambs, which tells us merino lambs are flowing in NSW, trade lambs are not.

Lamb slaughter was lower last week, but that was due to a public holiday.  Slaughter is likely to be higher this week but looking at last year’s trends (Figure 2) it could gain another 10%, which would put some pressure on prices.

The weaker Aussie dollar is giving lamb prices some support.  In US terms the current ESTLI premium over last year’s low is 100¢, in our terms it’s at 125¢.  There is likely to be a downside, but we don’t think it will hit last year’s levels.

Next week.

The fortnightly Bureau of Meteorology (BOM) outlook is a bit more positive this time.  Figure 3 shows the December to February outlook, we left November out as it’s not great.  We might have to wait until the New Year to see the rain, which will bring the price upside.  In the short-term downside is more likely, but it won’t last long.

Lamb yarding numbers are starting to climb across the east coast fueled by lifting Victorian throughput as the spring flush gets underway. However, prices are yet to dampen as a resurgence in offshore demand, particularly from China has export buyers scrambling to fill orders.

Weekly east coast yarding levels reached the highest they have been since late July jumping 26% from the prior week and is closing in on 180,000 head (Figure 1). Driving the east coast volume of lamb is the lift in Victorian numbers signalling the early stages of the spring flush.

Victorian lamb throughput is 104% up on levels from a month ago and is nearing 50,000 head per week. Despite the additional volumes most categories of Victorian lamb prices increased this week indicating demand is more than compensating for the extra supply (Figure 2).

Indeed, lamb and sheep prices have lifted across all categories reported by NLRS for eastern states indicators, with restocker lambs, light lamb and mutton leading the charge higher. East coast Restocker Lambs posted a 19¢ gain on the week to close at 878¢/kg cwt, Light Lamb is up 20¢ to 800¢ and East coast Mutton is performing exceptionally well (particularly in percentage terms gains) with a 19¢ lift to close at 605¢.

September trade exports figures give us a clue as to why lamb and mutton prices are holding up so well in the face of the start of the spring flush. This is particularly true for flows going to China to fill the protein void created by the African Swine Fever (ASF) epidemic. Mutton flows from Australia to China have increased 208% from July to September and year to date Chinese demand is running 108% above the five-year seasonal trend (Figure 3).

Next week

The strong resurgence in offshore demand for Australian lamb and mutton product is timely given that throughout volumes are set to extend higher as we proceed through spring. The big unknown is how large the appetite from China will grow as we head toward the end of the season.

There is a good chance that an ASF led lift in Chinese demand for mutton and lamb, over and above the normal spring increases in Chinese trade volumes, will see prices underpinned throughout the next few months. This will limit the depth of the traditional spring flush price decline.