Category: Sheep

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¢.