Category: Lamb

The title of this commentary isn’t referring to the grass but the sale yard price board for lamb and sheep across the east coast. Although, if we keep seeing rain falling in all the right places it won’t be long before the pasture starts to green up as well.

This week finally saw some decent rain to large parts of Western Victoria and Western NSW with falls extending beyond 50mm in some areas – Figure 1. A welcome relief to those that have seeded crops but also bringing optimism to sheep producers hoping to get some pasture growth before the winter chill sets in earnest.

The Eastern States Trade Lamb Indicator (ESTLI) responding as expected to the improved climatic conditions with a 24¢ rally on pre ANZAC day prices from last week to close at 745¢/kg cwt yesterday. Expectations of tight lamb supplies as we head into winter has seen the ESTLI push higher earlier than last season and now sits over 150¢ higher than at this time during 2018 – Figure 2.

As outlined in this week’s analysis the concerns over tight winter supply has seen Coles issue forward prices for July at 830¢/kg which bodes well for producers with supply to offer over the colder months.

The onset of rain lifted prices for sheep and lamb categories across the eastern seaboard, with all NLRS reported east coast categories recording gains this week between 20-65¢, Figure 3. East coast mutton responding particularly well to the wet, recording an 8% lift on the week to see it testing all-time highs to close at 547¢/kg cwt yesterday – it wasn’t that many years ago that lamb producers would have been ecstatic to be getting prices near the 550¢ level.

What does it mean/next week?:

The forecast for rain into the week ahead shows lighter falls expected for Western Victoria and Western NSW with the rain band moving across to the eastern regions of both states. The sales program has returned to normal after the ANZAC and Easter disruptions, so we will get a clear picture of how late Autumn supply is stacking up in the coming weeks.

While the rain persists and as supply starts to dwindle lamb and sheep prices will continue their march northward. Despite the recent heroics of an unnamed Game of Thrones character, kept vague so as not to be accused of spoiling plot lines, “winter is coming”.

Over a couple of weeks of supply disruptions, lamb and sheep markets have largely been treading water. There have, however, been some interesting moves in the Merino lamb category, if not in the prime lamb space.

Lamb slaughter rates plummeted last week as Good Friday took out a day’s slaughter and probably any Saturday morning shifts as well. Lamb slaughter was down 25%, which is obviously more than one day’s slaughter, so perhaps things are starting to tighten.

Sheep slaughter was down before Easter, having lost 32% since the last week in March. Good Friday only took out a further 4% (Figure 1), so there might have been a bit of a shift back to sheep.

Lamb and mutton markets were largely steady this week, with the Eastern States Trade Lamb Indicator (ESTLI) down 5¢ to 721¢/kg cwt and the East Coast Mutton Indicator losing 5¢ to 506¢/kg cwt.

The only real movement in the east coast indicators this week came from Merino Lambs. Figure 2 shows the East Coast Merino Lamb Indicator stopped just under 700¢ at 692¢/kg cwt. Merino lambs saw a gain of 29¢ and sit 160¢ above the same time last year. We are probably seeing tighter supply from the ordinary season, combined with stronger demand for Merino producers looking to restock.

There has been some good rain in western NSW this week, which while not drought-breaking, is the best they’ve had for some time. There might not be many sheep left out there but it can only be good for demand.

Next week?:

Next week will get back to more normal supply with full weeks resuming. There is still no real rain on the forecast but the recent move in sheep supply might be a pointer to what is to come, for both sheep and lambs.  Forward prices are starting to move towards 800¢ for June and July, but will it be enough?

Prices for all NLRS reported categories of east coast lamb and sheep have risen from levels recorded in mid-March, despite most measures of supply reaching toward seasonal highs. Most categories of lamb are fetching over 700¢ and mutton is holding above 500¢ this week.

Since mid-March lamb throughput across the east coast has been running 18% higher than the pattern set by the five-year trend and sheep yarding levels have been more pronounced, averaging weekly levels 47% above the five-year trend (Figure 1).

A similar picture has emerged for East coast lamb slaughter with average weekly levels running nearly 14% higher than the five-year average trend (Figure 2). The higher supply is having limited impact upon prices as meat works seem to be happy soaking up the additional supply prior to the Easter period slowdown.

A summary of saleyard price movements highlights the market strength over the past four weeks in the face of the higher supply. All categories registering closing prices this week that are around 70¢ to 100¢ higher than a month ago (Figure 3).

The Eastern States Trade Lamb Indicator (ESTLI) managed a 2% gain on the week to close at 722¢/kg cwt. In the West, trade lambs managed to climb also, up nearly 1% on the mid-week price summary from Meat and Livestock Australia, but were unable to break above the 700¢ level yet at 679¢/kg cwt.

What does it mean/next week?:

Reduced sales and a lighter offering is expected as we hit the Easter lull so it’s unlikely to see prices retreat too much in the coming weeks. Although the forecast for rain into the next week is pretty light on and without a clear sign of a decent Autumn break in the south there will be limited opportunities for prices to surge too much higher.

Lamb prices have had another positive week, with the Eastern States Trade Lamb Indicator (ESTLI) heading towards Easter above 700¢. As outlined earlier in the week, this could just be the start of bigger things to come.

It’s hard to get too excited by the ESTLI breaking through 700¢ since November. Over the hooks (OTH) prices have been above 700¢ for much of the first three months of the year and the saleyards have taken plenty of time to catch up. The unexpected strong supplies have kept a lid on saleyard prices as processors generally have gotten their fill direct.

With the release of yardings data for the week of the fourth, we can see why prices steadied last week. Figure 2 shows East Coast Lamb yardings hitting their highest level for the year, just shy of 200,000 head. The rapid price rise of the previous week no doubt drew out remaining good lambs, but things might have tightened a bit this week.

Lamb prices rallied in the west too. The WA Trade Lamb Indicator gained 20¢ this week to hit 674¢/kg cwt, the highest price since the first week of the year. WA mutton is lagging the east coast, sitting at 438¢, while the east coast is on 509¢/kg cwt.

Sheep yardings were also higher on the east coast last week and this might have continued this week.  No doubt those still waiting for rain are finding 500¢ mutton very attractive.

What does it mean/next week?:

There is little rain on the forecast on the east coast but it looks like autumn might kick off for parts of WA this week. We are also in for a couple of short weeks which can work for or against the market depending on how supplies are tracking. There are reportedly still plenty of lambs booked up, so don’t expect strong rallies for lambs this week, but after Easter things will be interesting.

There has been a softer trend present in lamb and sheep yardings in recent weeks. It is not uncommon to see a reduced sale yard offering as we head toward the Easter lull and with recent rainfall to much of the Eastern third of the country it seems to have encouraged firmer prices.

Throughput figures for this week are yet to be released. However, the trend in sheep yarding along the East coast is most definitely softer with the most up to date numbers showing the lowest weekly levels since the start of February – Figure 1.

Despite the softening pattern, sheep throughput remains above average, and this may persist when the figures are released next week as individual reports from many NLRS reported sale yards indicate that numbers were up, possibly encouraged forward on the back of last weeks’ strong prices.

It is likely that rainfall had a bigger influence on prices than sale yard throughput levels this week with decent falls across much of the Eastern states encouraging restocker buyers back into the market, particularly at NSW yards – Figure 2.

Across the East coast NLRS reported categories of lamb and sheep all managed a lift in price. Mutton was the standout performer among the pack with a near 7% gain on the week to close above 500¢. Lamb categories posting a more subdued performance, with gains of 1.5%-2.5% noted. Restocker lambs managed to climb back above 700¢, while the benchmark Eastern States Trade Lamb Indicator settled just below to close the week at 697¢/kg cwt (Figure 3).

Lighter rainfall in the West wasn’t enough to inspire a price gain with the mid-week update from MLA showing a 5¢ slip on the West Australian Trade Lamb Indicator for the week to settle at 654¢.

What does it mean/next week?:

The Bureau of Meteorology rainfall outlook for the coming week shows only light coverage of 1-5mm around nearly all the coastal fringe, with only the far northern tropics getting a heavier dusting.

Virtually no rain is likely for most of the sheep rearing country, so price movements are likely to be influenced more by supply. Heading toward the Easter break there’s a good chance this will continue to tighten so the price bias remains to the topside.

We knew it was going to happen, but the extent of this week’s move in mutton prices has been rather extraordinary. The indicators haven’t reflected the full move yet but we can get some ideas from today’s sale at Wagga.

Sheep prices have gone bananas this week. Figure 1 shows the National Mutton Indicator (NMI) hitting a six month high of 473¢/kg cwt yesterday. Prices did rally as the week went on. At Wagga yesterday, Meat and Livestock Australia (MLA) reported sheep making over 600¢/kg cwt. Just last week, there were heavy lambs making less than 600¢.

Wagga saw new records in terms of heavy wethers making over $200 per head, while restockers competed with processors for ewes.  Many ewes made over $150 per head, with some better than $200.

We’ll have to wait until next week for full supply data but Wagga mutton supply dropped 30%. Thanks to a bit of rain, and the threat of more, producers kept what sheep they have left at home.

Unlike sheep, lambs get to a point where they have to be sold before they turn into sheep.  Lamb supply was still strong enough this week, but prices did get some lift from the mutton market. The Eastern States Trade Lamb Indicator (ESTLI) hit a 2019 high of 683¢/kg cwt, having gained 36¢ for the week.

WA saw the biggest jump in their mutton indicator and also had the most expensive mutton in the country. The WA Mutton Indicator gained 72¢ to post a 20 month high of 477¢/kg cwt. In fact, WA mutton prices have only ever been higher briefly in June 2017 (Figure 3).

What does it mean?

Sharply higher prices usually bring out more stock. A lack of supply is fixed by higher prices. During droughts, or when there is a sniff of a break, this sometimes doesn’t work. There may not be any more sheep that producers are prepared to part with, as they are required for future income. The coming week will tell the story but the record mutton indicator is 550¢ and it looks like we are headed in that direction.

A bit of a mixed bag for lamb price movements this week across the Eastern states, with Restocker, Trade Lambs and Mutton the only categories to see a price lift. Mutton prices remained remarkably strong in the face of elevated yarding and slaughter throughout much of March.

NSW saleyards are where the bulk of the sheep are being presented, with average weekly throughput levels during March sitting 43% above the five-year trend and 30% higher than in 2018. The increased NSW mutton yarding has helped to lift the overall East coast levels during March to see average weekly levels trending 22% above the March average pattern – Figure 1.

Throughput is not the only elevated supply measure for mutton with East coast mutton slaughter also remaining elevated during March – Figure 2. Both NSW and Victorian mutton slaughter are contributing to the increased East coast total slaughter. Average weekly NSW mutton slaughter during March have been running 27% higher than the five-year average, while Victorian mutton slaughter has been 23% higher. The two states combining to see East coast slaughter averaging weekly slaughter levels that are 11% higher than the five-year pattern.

Despite the weight of supply, mutton prices managed to gain nearly 5% this week to creep back above 400¢/kg cwt, closing the week at 413¢. The prospect of rain from tropical cyclones pushing further into the southern regions in the coming week also seemed to spur on Restocker Lamb prices to see them gain over 4% to close at 644¢ – Figure 3.

The benchmark Eastern States Trade Lamb Indicator (ESTLI) managed a milder 1% lift to see it close at 647¢/kg cwt.

What does it mean/next week?:

Remnant moisture from the cyclone activity in Northern Queensland is expected to make its way into Southern regions this week, with NSW benefitting from 10-25mm falls across much of the state. It is probably not heavy enough, nor going to be sustained for long enough, to make a significant impact upon price while supply remains elevated but could encourage some minor gains.

Another week, and more of the same for lamb prices. While lamb producers should be happy that they’re not trying to sell cattle at the moment, many are still thinking about the prices they didn’t lock in earlier in the year, as prices drift along the same path as last year.

Since January lamb prices have been up and down. They are still better than last year but are following a similar trend and easing from January levels. Forward pricing has generally been anticipating a price rise at some stage, but it is yet to eventuate.

As outlined in our article earlier this week, lamb supply has been surprisingly strong and sheep supply has easily outstripped last year’s levels. Supply is keeping a lid on prices but, as we know, strong demand means prices have never been this strong at this time of year (Figure 1).

The only reason to really be disappointed with prices is if lambs were bought and fed. Selling these in the current market is likely to have resulted in a loss. Homegrown lambs have never made better money in March.

There is a little cause for optimism on the price front, however. The Bureau of Meteorology (BOM) is forecasting around a 50% chance of most of Victoria and NSW receiving median rainfall. Another way of looking at this is shown in figure 2. It shows the chance of getting 25mm in April. It’s pretty good for a lot of sheep country, if we raise it to 50mm, there is a lot less blue and a lot more brown.

What does it mean/next week?:

We received more correspondence this week regarding flocks consisting of fewer ewes having lower scanning rates. Again, we saw this last year and it really came home to markets from July through to September. Unfortunately to take advantage of high prices, lambs either have to be very late or very early.

What we do know is that those with the ability to carry lambs through winter, or get them up to weight early, will see some handsome payoffs.

We’ve been working on upgrading our lamb price forecasting abilities at Mecardo and have recently developed an interactive modelling tool that allows us to forecast the annual average level for the Eastern States Trade Lamb Indicator (ESTLI) based on key supply and demand inputs.

In this analysis we take the model through a test run, playing out a handful of scenarios for the next few years to see the potential impact on lamb prices.

The forecast model uses predictor inputs such as the Australian dollar level, annual Australian lamb slaughter levels and demand metrics based on per capita gross domestic product (GDP) measures from some of our key export destinations to forecast an annual average ESTLI level.

Figure 1 shows how the model compares to the actual ESTLI since 1998, including a forecast based on financial market consensus for the A$ level over the next few years, the Meat and Livestock Australia annual lamb slaughter estimates from their 2019 Sheep Industry projections and the GDP forecasts from the International Monetary Fund (IMF).

It suggests that growing wealth from offshore consumers will keep demand strong for our lamb exports and underpin prices for the ESTLI to see it average around 840¢ in 2019, dipping to 806¢ in 2020 as lamb slaughter rates in Australia increase.

However, we can adjust the lamb slaughter levels in the model to play out a second scenario that would test what the impact of a dry 2019/2020 will have on the ESTLI if slaughter rates increase from 21.5 million head in 2019 to 22 million head and if the 2020 lamb slaughter lifts from 22.1 million head to 23 million head – figure 2. The result of the increased slaughter is to see the ESTLI forecast for 2019 drop from 840¢ to 795¢ and the 2020 forecast decline from 806¢ to 755¢.

We can also imagine a third scenario where the increased lamb slaughter levels coincide with a shock to world growth levels during the 2020 season that limits the demand for lamb exports from our key offshore destinations. This could be in the form of a Chinese credit crunch impacting upon the Asian region and/or increasing US interest rates flowing through to softer global GDP growth levels.

Scenario three forecasts the ESTLI dip in 2020 extending further on the back of the decrease in offshore demand to see it average 640¢ before recovering back above 700¢ as GDP growth recovers beyond 2021 – Figure 3.

What does it mean/next week?

Interestingly, the model predicts a continuation of historically good price levels for lamb into the next few years even after we account for unforeseen problems such as an extended dry period within Australia, resulting in higher than expected slaughter levels, and/or a short-term hiccup to world growth and red meat demand.

Indeed, the model doesn’t forecast an annual average ESTLI below 600¢ in the next four years under any of the three modelled scenarios.

Key points:

• Price modelling for the ESTLI based on current MLA slaughter projections and global demand growth for lamb consumption estimates annual average prices above 800¢ for the next few years.
• Assuming a drier climate and higher slaughter than currently forecast will place the estimates for the 2019 and 2020 season into the 800¢ to 750¢ range.
• The inclusion of a demand shock due to falling growth levels could see the ESTLI annual average drop towards 650¢.

Elevated sheep slaughter continued to drag on mutton prices this week across the East coast and, while sheep supply in NSW is running at levels similar to what we saw this time last season, it is interesting to note that Victoria has seen a significant lift in sheep slaughter rates since the start of 2019 compared to the first few months of 2018.

NSW sheep slaughter levels have been averaging close to 57,100 head per week since the start of the season, only marginally ahead of the 55,800 head recorded for the same timeframe during 2018. Although, compared to the five-year seasonal average NSW sheep slaughter has now had two consecutive seasons where weekly slaughter has been running nearly 30% above the five-year trend, representative of the dry conditions facing NSW producers – Figure 1.

In contrast, Victorian sheep slaughter levels began the 2018 season below the five-year average pattern, with slaughter levels not really taking off until the middle of the season. So far in 2019 it has been a robust start to sheep slaughter levels in Victoria with a weekly average of nearly 65,000 head processed. This is 31% higher than the volumes we saw slaughtered during the same timeframe last season and 26% over the five-year average trend – Figure 2.

The additional supply of mutton across the East coast weighing on prices with sheep prices 5% lower than where they were this time last year, after staging nearly a 7% decline on the week to close at 385¢.

Sheep prices not alone in the price drop this week with all NLRS reported categories experiencing a decline – Figure 3. Although, Restocker Lambs the are the only other category to be lower than this time last season – albeit marginally at 1¢ softer to close at 613¢.

The Eastern States Trade Lamb Indicator (ESTLI) performing best this week out of the NLRS reported lamb categories with only a 2.5% decline to finish at 639¢/kg cwt. Declines ranging between 3%-4% noted for other lamb types.

What does it mean/next week?:

With supply remaining elevated and not much rainfall forecast for sheep country in the coming week there isn’t a lot to inspire a price lift. Although it is worth noting that higher slaughter now will likely mean less available supply when we hit the depths of Winter so there will be plenty of time for price to play catchup then.