Category: Lamb

An expanded cross bench in Federal parliament has placed the ban on live sheep exports back on the agenda. Mecardo thought it an opportune time to reaffirm how important the live sheep trade is for WA farmers, particularly in terms of prices they receive at the sale yard compared to their east coast counterparts for lamb and mutton, when live export buyers are active.

Price spread discounts for WA Trade Lamb and WA Mutton continue to narrow as live export buyers re-enter the market, bringing prices in the West Australian sale yards back in line with East coast prices.

The WA Trade Lamb spread pattern to the Eastern States Trade Lamb Indicator (ESTLI) shows that reduced live export volumes through the winter period saw WA producers earning 230¢ less per kilogram carcass weight than East coast producers – Figure 1. However, since the re-entry of live export buyers into the final quarter of the season the spread discount has narrowed significantly for WA Trade Lamb, sitting just below what is normal for this time in the season at a 22¢ discount to the East coast.

In a similar manner, WA mutton spreads to the ESTLI widened to a discount of 450¢ during late Winter as live export flows of sheep ground to a halt, well below what would be considered normal seasonal variation as identified by the grey shaded 70% range boundary – Figure 2. Increased activity of live exporters into the final quarter of 2018 have seen WA mutton spreads improve moving back into the normal range in recent weeks for the first time since July 2018.

Comparing the average monthly spreads for WA Trade Lamb and WA mutton to monthly live sheep flows we can see a relatively clear deterioration in prices being achieved by WA producers, compared to the East coast markets as live sheep export volumes declined from May through to August – Figure 3.

The relationship between live sheep export volumes and WA price spreads can be further demonstrated by the monthly correlation pattern between spreads and live trade volumes– Figure 4. Higher trade volumes clearly coincide with improved spreads for WA producers with WA mutton demonstrating a slightly stronger correlation coefficient (R²) of 0.6846 compared to WA Trade Lamb with a coefficient of 0.6164.

Our previous two articles on WA lamb and mutton spreads can be found on the links below

What a difference a shipment makes.

A reversal of fortune for WA producers.

What does it mean/next week?

It is pleasing to see price spreads in WA markets normalize in recent weeks with the reintroduction of more sale yard competition in the form of live export buyers. Hopefully, as Federal members deliberate the bill seeking to phase out the live sheep trade they will pause to reflect upon how important the trade is to WA farmers and the industries that support them, such as transport, fodder suppliers, merchandise stores, etc.

If those seeking to ban live sheep exports are successful it is likely just a matter of time before their target will shift toward the live cattle trade. What will be their next target if they achieve success here too? Banning intensive animal farming practices in the beef feedlot, pork, chicken and egg industries, banning long haul animal transport over land and/or any shipments of live animals overseas? It’s a slippery slope and for a member of parliament like Andrew Wilkie, representing the Tasmanian electorate of Denison, I wonder if his support for the banning of live export sheep overseas extends to the shipment of Tasmanian live sheep (and cattle) over the sea to the mainland?

Key points:

• WA price spreads for Trade Lamb and Mutton have improved significantly since the re-emergence of live export buying competition in the last quarter of 2018.
• A strong relationship exists between live sheep export trade volumes and WA price spreads to East coast markets for Trade Lamb and Mutton.

Perspective is a funny thing, especially when it comes to commodity prices. This time last year the Eastern States Trade Lamb Indicator (ESTLI) hit a new record high of 661¢/kg cwt and lamb producers went into Christmas a very happy bunch. This year the price is the same, but the mood is not as buoyant.

Lambs are the same price, but many producers are not seeing great prices, they are counting the missed opportunity of locking in prices at over 100¢ better than current values (Figure 1). Prices over 800¢ are also a recent memory, which adds to the perceived loss.

We know, however, that prices over 600¢ are highly profitable for those lamb businesses which haven’t been in drought, and hence the flow of lambs this November and December has been strong.

There will be some interesting supply and demand functions over the coming month. The rain falling this week should encourage retention of lambs. However, anecdotal reports suggest many Victorian processors are fully booked for January.

We may see light lamb prices rally and finished prices steady, that is unless the dearth of supply in NSW worsens and drags all prices higher.

Sheep is another story.  It’s very hard to see sheep slaughter maintaining current levels with crucial northern sheep regions getting a good downpour. We haven’t seen mutton indicators above 500¢ for any extended period of time since the middle of 2017. Next year could be a record breaker for mutton.

What does it mean/next week?:

There will be some sales early next week, but things will be quiet after that. Many of the lambs which will be killed between now and early January will have already been booked, so sending lambs to the saleyards might be a raffle.

Victorian lamb numbers continue to swell, hitting levels similar to last year’s peak and pushing East coast lamb numbers to levels not seen since January 2018. Sheep numbers at the sale yard have also rebounded over the last few weeks and the result has been softer lamb and mutton prices across the board.

East coast sale yard prices for the commonly NLRS reported categories of lamb and mutton are outlined in Figure 1 and it shows that the increased throughput having an impact on all prices, although only minor falls registered for Merino Lamb and Mutton.

Restocker Lambs taking the biggest hit with an 8% drop to close at 654¢/kg cwt. The Eastern States Trade Lamb Indicator (ESTLI) posting a more modest 3% fall to finish the week at 663¢/kg cwt. Interestingly, we are now nearing the area we originally suggested the ESTLI was likely to bottom out once the Spring flush was competed.

Back in October we released an analysis piece suggesting the bottom would be found around the 630-650¢ level in late November. Granted, we are little late with the timing but its near enough now to call the bottom for the ESTLI given there can’t be too much more of the Spring flush to play out.

Victorian lamb yardings gaining 25% week on week to see 148,298 head recorded. This time last season the Victorian yardings peaked at 147,363 so it is fair to expect there can’t be much more lambs to come in the next few weeks. East coast lamb yardings boosted by the Victorian flow, registering just short of 300,000 head presented, to see the highest weekly total throughput since the start of the season – Figure 2.

A similar story for east coast mutton throughput too this week with a 15% gain in numbers week on week to see nearly 123,000 head yarded. A surprising number of sheep still being offered up, given the elevated yarding we have been seeing along the east coast since the middle of the year.

What does it mean/next week?:

The next week has some pretty good rainfall forecast for much of Victoria and Southern NSW, with up to 50mm expected across a broad area. This is likely to encourage any remaining stock to be held a little longer by producers so expect prices to stabilise and don’t be surprised to see a little kick higher as we head toward the Xmas break.

With some wild variation in lamb and sheep markets this year it is unusual to see a relatively steady week. But this is how it panned out this week, with relatively steady prices across the east coast indicators. However, delving deeper into state data hints at what may be to come.

Mutton prices remain well above the five-year average (Figure 1), but this week have again fallen below last year’s levels. With the National Mutton Indicator at 431¢/kg cwt, it was well outstripped by NSW Mutton this week, which sits at 460¢.

Dragging the national average back was Victoria (404¢) and South Australia (336¢). In the West, the Mutton market is close to the national average at 421¢/kg cwt.

Still, Mutton is being slaughtered hand over fist. Figure 2 shows mutton slaughter 33% above the same time last year and 14% above the five-year average. The last time we saw slaughter at this level in the spring was in 2014.

Total Ovine slaughter is shown hitting 548,000 head in Figure 3. It has been four years since the supply of lamb and mutton has been this strong. At that time the Eastern States Trade Lamb Indicator (ESTLI) was at 466¢ and mutton at 295¢. This is a good snapshot of how far demand has come.

The ESTLI finished Thursday at 684¢/kg cwt, supported by NSW where Trade Lambs were 728¢, but dragged lower by all the other states.

What does it mean/next week?:

Rain in NSW this week should continue to help boost demand and should start to limit supply. The flow of mutton has been very strong and we suspect it can’t continue once grass is available. With lamb price still well above last year’s levels, we expect mutton to make up some ground before lamb makes its next move higher.

A rebound in lamb yarding levels along the East coast was noted this week as the sales program returns to normal post the Victorian Spring Carnival events. The increased supply is weighing on prices marginally, despite the support offered by some reasonable rain to the Eastern half of Victoria and NSW.

Lamb throughput levels increased 47% on last week’s lull in saleyard offerings, to see it back above the seasonal average by 10% as nearly 250,000 head changed hands (Figure 1). All mainland states contributed to the increase in lamb yarding with NSW lamb throughput levels showing uncharacteristically high volumes for this time in the year, sitting 36% above the five-year average.

South Australian lamb yardings saw a gain of 37% on the week but appear to have reached their spring flush peak a fortnight ago, now sitting 12% under the five-year seasonal average trend. Victorian lamb throughput is back on track for a Spring flush peak during November/December, staging a 46% rebound from last week to see over 101,000 head yarded (Figure 2).

The increased supply of lamb is weighing slightly on prices across the East coast with all NLRS reported categories of lamb registering falls between 2 – 24¢. The Eastern States Trade Lamb Indicator (ESTLI) lost the least ground in the face of the additional lamb numbers, closing yesterday at 693¢/kg cwt (Figure 3).

In the West, trade lambs are continuing to play catch up to the Eastern states prices with a 17¢ increase on the week to close at 641¢/kg cwt. The WATLI managed to climb despite lamb throughput levels running 54% above the seasonal average.

What does it mean/next week?:

With rainfall for the next week mainly confined to Southern Victoria, there isn’t an obvious catalyst to get lamb and sheep prices probing higher. The Victorian spring flush still has a few more weeks to run, so price pressure on lambs is likely to continue to persist into the short term but don’t expect them to drop away too far. Consolidation in price at current levels is probably the most likely scenario over the next few weeks.

The lamb market seems to have found a level it was happy with this week. With supply disruptions due to the Melbourne Cup, it’s hard to get a gauge on supply, but it appears we might have seen the spring low.

The latest yardings reported by Meat and Livestock Australia (MLA) are to the end of last week.  Figure 1 shows that the Melbourne Cup holiday, along with the lower prices, saw a 39.6% decline in yardings. The supply decline saw 119,000 fewer lambs hit the yards across NSW, Victoria and SA.

A quick look at this week’s lamb reports tells us supply has bounced back. Victoria yarded over 100,000 head, which is around normal for this time of year.

Slaughter numbers also tell an interesting story. Figure 2 shows the total sheep and lamb slaughter for the east coast has been close to last year’s levels. Despite stronger prices than last year, processors still seem to be able to make a margin.

Figure 3 shows the Eastern States Trade Lamb Indicator (ESTLI) has again bounced off 680¢ to this week post a 17¢ gain to hit 695¢/kg cwt. There was, however, a decline in prices at Wagga on Thursday, which dragged the ESTLI back from 700¢.

WA Trade lamb and mutton prices managed to maintain their strong levels this week, at 627¢ and 405¢/kg cwt respectively. It’s interesting, however, to see WA restocker lambs back at 554¢/kg cwt.  With cheaper grain in the west, you’d think there should be a narrower spread between restocker and finished lambs than in the east.

What does it mean/next week?:

Growers seem to have shown their cards, with prices under 700¢ now seemingly a hold for many.  It shouldn’t be surprising, with forward contracts close to 800¢ a recent memory.

With more rain forecast for the coming week across parts of NSW and key Victorian and South Australian areas, there might be more sheep and lambs held, and higher prices.

Those familiar with the movie ‘Braveheart’ will recall the scene where Mel Gibson and co are facing a cavalry charge from the English Army. Mel said ‘Hold, hold, hold, now!” and the Scottish rebel impaled the English horses on spears and subsequently won the battle. It’s a weak analogy, but with Victorian lamb producers facing encroaching dry conditions, they have held, and held, and held, until this week they raised their spears, but were themselves impaled. Metaphorically, not literally.

After Matt’s article last week, and earlier this week, looking at Victorian lamb yardings, or lack thereof, this week the lambs appeared (Figure 1). The lift in supply was felt across all yards, with Naracoorte in South East South Australia also seeing a big rise.

With plenty of lambs and sheep seemingly booked in over the hooks, prices tanked sharply. Normally we don’t see Victorian lamb yardings over 100,000 head for another month and so processors definitely didn’t have the space to kill them.

When supply overwhelms demand, prices fall. Although, there was some good news. The Eastern States Trade Lamb Indicator (ESTLI) fell 77¢ but only back to the levels seen three weeks ago. Processors and restockers were happy to buy lambs at the lower levels, even if they weren’t to be killed this week.

All lamb prices fell this week, but mutton ‘only’ lost 35¢ to sit at 431¢ on the east coast and 400¢ in the west. While in the west, lamb prices rallied, gaining 9¢ to 575¢/kg cwt. Still well behind the east, but on the way up.

Next week?:

The high prices of the last couple of weeks, along with dry weather, encouraged growers to offload lambs this week. The test will be whether supply continues to flow, or if it pulls back with lower prices. The Melbourne Cup usually sees lower yardings next Tuesday, so we might not get a real indication until the following week. The relatively strong prices in the face of heavy supply are encouraging, however, at least for well-finished lambs.