Category: Lamb

Declining sale yard throughput and slaughter levels for lamb and sheep markets are making their presence felt on price movements this week. Across the national market indicators prices were up for all categories of stock except for mutton.

East coast lamb markets leading the charge higher with reports of heavy lambs in Wagga fetching record prices of over $350 a head. The Eastern States Trade Lamb Indicator (ESTLI) reflecting the buoyancy across the eastern markets with a 42¢ gain to close yesterday at 885¢/kg cwt.

The National Trade Lamb Indicator (NTLI) climbing too, although not as robustly as the ESTLI, posting a gain of 22¢ to hit 874¢ – Figure 1. West Australian lamb markets dragging on the national lamb indicator figures with all reported lamb categories in the west posting falls between 40¢-110¢. The West Australian Trade Lamb Indicator (WATLI) off 65¢ to finish yesterday at 815¢.

East coast lamb yarding levels have taken a 34% dive in recent weeks to see it trending below the five-year seasonal pattern for the first time since April – Figure 2. Last season we saw a dip toward 120,000 head for east coast lamb yardings during late June, so we may not be out of the woods yet for the tight winter conditions.

Lamb slaughter levels in the east are reflecting the tight conditions too with the most recent figures dipping below the normal seasonal range to record the second lowest weekly figure since the start of 2019 at a whisker under 266,000 head – Figure 3. Bearing in mind that the lowest weekly figure this year was during the Easter/ANZAC shortened trading week for meat processors it’s a sign that margins are likely tight, at least for sheep and lamb processing lines.

What does it mean/next week?

The weekly rainfall forecast points to some decent falls scheduled for the west, up to 100mm for some south west coastal regions which could relieve the recent price pressure experienced in WA.

Across much of the rest of the sheep rearing regions across the nation there isn’t much rain on the horizon to support prices so producers will have to rely on the tight winter supply to keep some price buoyancy present.

Hopefully the live sheep export hiatus currently underway won’t continue to act as a drag on WA prices throughout the remainder of Winter.

• MLA have only made minor changes to flock and lamb supply forecasts for the coming years.
• The 2018 flock was 3 million head higher than the January estimate.
• Sheep supplies are forecast for fall, but it may not be enough for a flock rebuid.

Meat and Livestock Australia (MLA) released their Industry Projections for sheep last week.  There were a few surprises, notably the steady lamb slaughter forecasts, along with relatively stable flock forecasts for the coming four years.  A higher than expected 2018 sheep flock has been dwindled down with sheep slaughter for the first four months of 2019 25% higher than last year.

While heavy sheep slaughter early this year could be expected to see even lower flock numbers than the January projections, a key alteration has seen things remain relatively steady.  MLA estimated the closing (June 30) 2018 flock in January was 67.73 million head.  The actual number, provided by the Australian Bureau of Statistics, (ABS) was 70.61 million head.

MLA are now forecasting a bigger fall in the flock this year, with the June 30 2019 number coming in at a new low of 65.26 million head (figure 1), down 7.6% on the final 2018 number.  The new forecast for 2019 is 1% higher than the January forecast, so the higher than expected flock at June 2018 has compensated for heavy slaughter thus far in 2019

The projections for lamb slaughter for the coming four years are little changed from January.  Figure 2 shows the 2019 forecast remains the same, while for 2020 and 2021 the forecasts have been cut by 1.5%.  Lamb slaughter is expected to be back near record levels in 2022.

The biggest revision came in the 2019 sheep slaughter forecast, which was increased 6% to 8.5 million head (Figure 3).  Sheep slaughter forecasts for 2020-2022 have been revised 3-5% lower, but this may not be enough.

Last week’s article looked at previous sheep slaughter levels, and where they needed to be for the flock to grow.  Sheep offtake needs to be lower than 10% for the flock to grow.  From a flock low this year of 65.26 million head, sheep slaughter will have to be 6.5 million head, and likely lower for the flock to grow.

What does it mean/next week?:

Even at the supply levels forecast by MLA last week sheep and lamb prices are going to remain very strong for the coming two or three years.  We think supplies could be even lower than MLA are forecasting, especially if the flock is grow by 8 million head over the next four years.

There is likely to be a drag on lamb supplies as well, with more females and merino’s likely to be held to join the flock, which will obviously add plenty of support at the sale yard level. 

• The ESTLI is trading 28% higher than this year’s low but is yet to break all-time price highs.
• The NMI is 47% higher than this season’s low and has pushed above the record high price set in 2016 of 526¢.
• Seasonal percentage price gain/loss patterns suggest that an ESTLI peak near 900¢ and NMI peak approaching 660¢ this year is not out of the question.

This time of the season we expect to see sheep and lamb prices testing higher and the National Mutton Indicator (NMI) hasn’t disappointed, reaching record heights last week of 544¢/kg cwt. The Eastern States Trade Lamb Indicator (ESTLI) has been pushing northward too but is yet to beat it’s 2018 winter peak of 884¢/kg cwt. What can the historic seasonal pattern tell us about this year’s peak for the NMI and ESTLI?

The ESTLI is sitting around 28% higher than the February 2019 seasonal low of 619¢ but is yet to crack the 800¢ level. It’s still nearly 11% short of the winter record peak price of 884¢ achieved last season. In contrast, the NMI has rebounded 47% from the February seasonal low of 369¢ and has well and truly sailed into unchartered territory. After eclipsing the record high of 526¢ set in June 2016 the NMI has pushed toward the 550¢ level in recent weeks (Figure 1).

Analysis of the percentage price gain/loss pattern for the ESTLI since the start of 2019 demonstrates that after a similar first quarter trend to the 2018 season, trade lamb prices across the east coast have begun their seasonal price climb earlier than last year (Figure 2).

In 2018 the ESTLI didn’t start to rally until late April/early May but this season we have seen the ESTLI gaining ground since March. The long-term seasonal average pattern for the ESTLI highlights that prices don’t usually peak until late July/early August, so we may have a way to go yet for trade lamb markets. If we assume a winter peak for the ESTLI nearer the upper end of the 70% range, at a 35% gain on the January 2019 opening price, this puts the 2019 peak at 900¢/kg cwt.

The seasonal percentage price gain/loss pattern for the NMI shows that for the 2019 season mutton prices are broadly on track to reach their seasonal peak during June/July (Figure 3). Projecting a relatively normal seasonal trend, as outlined by the ten-year average pattern, shows that a 40% gain on the January 2019 opening price isn’t unrealistic and this would see mutton peaking at around 575¢/kg cwt.

What does it mean/next week?

Interestingly, the continuation of strong export demand for mutton could see the percentage price pattern trend toward the upper boundary of the 70% range. A winter gain closer to 60% from the January 2019 opening price could see the NMI stretching towards 660¢.

Yarding figures remain elevated for lamb and sheep despite a recent downturn. Lamb slaughter levels are above average too, while sheep slaughter has returned to levels consistent with the five-year average seasonal trend. Perhaps it is a good omen for producers as we approach Winter that prices continue to firm in the face of strong supply.

As reported in last week’s market comment higher prices for lamb and sheep have failed to encourage more throughout at the sale yard with east coast levels for both categories posting a fall from the week prior (Figure 1).

Average weekly east coast lamb yarding levels for May have been running 20% above the five-year average and sheep yarding levels during May have been trending 35% higher than their long term seasonal average pattern indicating that demand for lamb and sheep remain robust as prices have been steadily moving higher.

Indeed, at the Ballarat sale earlier in the week heavy export lambs set a Victorian record price of $300 per head, which equates to around 785¢/kg cwt. Higher prices have been replicated across the east coast with the Eastern States Trade Lamb Indicator (ESTLI) climbing 3% to close the week at 787¢/kg cwt. East coast mutton unable to hold ground this week, but only eased 4¢ to close at 557¢/kg cwt.

What does it mean/next week?

A glance at the five-year average seasonal trend for lamb/sheep yarding and slaughter show a clear decline in volumes as we head toward Winter, so a tightening of supply is looming.

A weakening Australian dollar, down around 3.5% over the last month and trading below 70US¢, combined with robust offshore demand for Aussie lamb/sheep exports should continue to provide solid price support across ovine markets in the coming weeks.

It has been some time since we’ve talked about rainfall driving sheep markets for three weeks in a row. Precipitation has all but completed the autumn break for key sheep areas in Victoria and South East SA. It doesn’t rain grass, but try telling restockers that this week.

In another week of stronger prices, it was restocker lambs which stood out in the ovine complex.  Figure 1 shows the NSW Restocker Lamb Indicator streaking ahead of the Eastern States Trade Lamb Indicator (ESTLI).

The NSW Restocker lamb price has gained over 100¢ in two weeks, and 250¢ in six. For a 16kg cwt lamb this equates to $16 and $40 per head, with prices this week at $136 per head. Figure 1 shows 854¢ is a new record, well above the peak seen in September last year.

Those buying restocker lambs in NSW are literally banking on grass growing. If finished on grass, lambs bought now and sold at better than 800¢ should make a good margin.

Mutton prices set another record this week on the east coast hitting 561¢/kg cwt.  In WA, sheep are not cheap, but at 400¢, they are a long way behind the east. Trade Lambs are not as far behind, the WA indicator at 703¢ (Figure 2), less than 10% behind the ESTLI.

Over the hooks prices moved higher this week in response to rising saleyard values, with NSW leading the charge. The rain in Victoria this week is likely to see southern prices catch up.

 Next week?:

When rising prices don’t draw out more numbers, prices generally keep rising. Last year the rally lasted five months and finished 55% higher than the autumn low. The next leg up might be soon and sharp. Rain in Victoria might encourage holding of lambs for winter premiums, so it might take another 40¢-50¢ higher to draw them out.