Category: Sheep

• The restocker lamb discount in NSW has reached new lows in recent weeks.
• Store lambs are likely to remain relatively cheap if it doesn’t rain, finished lamb prices should remain strong.
• A good rain will boost store lamb prices in the short term, and weaken finished lamb prices later.

Earlier this week we took a look at the usual supply of new season lambs out of NSW, and how this might change this year. Since then we’ve had a related query on how the expected increased supply of store lambs out of NSW might impact prices and whether Merinos normally soldas store lambs might be better off finished and on the hook. The answer, as always, is it depends on rainfall, but we’ll run some possible scenarios.

There is plenty of concern surrounding what will happen with NSW lambs which are not going to be finished at the usual time. NSW producers will have a couple of options. These lambs can be sold as stores in the spring. If it rains in the next month or six weeks, lambs are more likely to be grown out and sold later as finished lambs.

The question we had was from a grower who normally sells one-year-old merinos off shears as woolgrower wether lambs. The concern is that the price of store wether lambs might enter a market where buyers might be more attracted to cheap store crossbred lambs, rather than merino wethers.  The other option is to fatten the merino wethers to sell over the hooks.

In essence, we are taking a look at how the store market might be priced in the spring and how long merino slaughter prices might hold strong.

NSW store lamb prices haven’t taken a hit in recent weeks, they just haven’t recovered like the prime lamb market. The NSW Restocker Indicator has been trading between 550 and 600¢/kg cwt over the last month (Figure 1). It’s discount to the Eastern States Trade Lamb Indicator (ESTLI) has never been larger (Figure 2).

It’s not unusual for restocker lambs to become cheap at this time of year, but given the season in NSW, it’s hard to see restocker lambs bouncing back relative to the ESTLI. The worst case scenario is restocker lambs staying at around a 100¢ discount to finished lambs.

The ESTLI seems unlikely to fall below 650¢ in the medium term and given the expected finished lamb supply it should hold through into early spring, so we can peg restocker lamb values at 550¢, or $92 for a 40kg liveweight lamb.

Meanwhile, slaughter Merino lamb prices are holding strong. The National Merino Lamb Indicator is at 650¢/kg cwt (Figure 3), which is probably the best case price for the spring, as prices might fall as low at 580¢.  For an 18kg cwt slaughter merino lamb it gives us a $105 to $117 per head plus skin, which is a good premium to the expected store lamb price.

The Week Ahead:

This basic analysis gives a good indication that finishing lambs for slaughter in the spring is going to be a better option than trying to sell as stores in a dry season. If it rains it will open up options for lamb producers, as increasing feed supplies will see the store/finished lamb spread narrow.

We know that lambs need to be set on course for slaughter soon with preferential treatment or supplementary feeding, and if it rains this effort might be wasted. But it’s worth remembering finished lambs from NSW are still going to be a while coming, even if it does rain soon.

Lamb and sheep markets have hit some solid resistance at the 730¢ and 520¢ mark respectively. There are plenty of reports of processors cutting shifts and slowing production rather than competing harder for lambs. The latest three month forecast doesn’t suggest the supply of finished stock is going increase soon.

You may have noticed that we have had to change the Y-axis on our Eastern States Trade Lamb Indicator (ESTLI) charts. In fact, when we rolled into the new financial year, the ESTLI was literally off the chart. The top of the ESTLI charts are now 750¢, but the rally has slowed and it might not get there in short term. However heavy lambs are not far off, hitting 743¢ this week.

We’ve seen a new record high for the ESTLI, this week gaining 11¢ to reach 724¢/kg cwt (Figure 1).  The WA Trade Lamb Indicator is ‘languishing’ at what used to be a very good price of 632¢/kg cwt.

The cheapest lambs in Australia are restocker lambs in WA, with the indicator at 514¢/kg cwt. In SA the restocker lamb Indicator was at 740¢, which makes the trip across the Nullabor viable. We’re not sure where the demand in SA is coming from, but suggest the indicator comes from a small number of lambs.

We heard an anecdote today about store sucker lambs coming from areas north of Adelaide with 1000 on a B-double. This is a lot of light lambs. We have been on about the increased supply of store lambs this week and this sounds like the beginnings.

What does it mean/next week?:

The weather forecast tells us the finished lamb shortage might last a while. There is a 65-80% chance that rainfall will be lower than the median across almost all of Victoria and NSW. There are some key lamb growing areas which are currently going ok, but most with new season lambs hitting the ground now are unlikely to be able to soak up extra supply from the north. It might be time to start thinking about how to finish lambs this year, even if they haven’t been born yet.

After the big spike in lamb prices last week the market steadied. There was plenty of talk about the high prices making things hard for processors, but lamb and sheep slaughter still managed to remain at or above last year’s levels.

Figure 1 shows weekly lamb slaughter starting to follow the 2017 pattern very closely. The fall in slaughter last week was no doubt part of the reason prices rallied so strongly as it was the lowest full week slaughter for the year to date.

Like last year the tighter supply and higher prices are likely to trigger slowdowns in production, but the way lambs have been killed in April, May and June, there might not even be enough lambs for that.

Despite higher prices, sheep slaughter ramped up last week (Figure 2). This tells us that perhaps there is more money in sheep at the moment for processors. Combined sheep and lamb slaughter is still 5% higher than the same week last year.

The high prices last week drew some more lambs into yards, and this week it was heavy lambs which made the best money. The Eastern States Heavy Lamb Indicator gained 29¢ to hit a record of 735¢, while the ESTLI was up just 5¢ to 715¢/kg cwt (Figure 3).

In the West, prices eased 10% for both lambs and sheep, to 607 and 398¢/kg cwt respectively. At that price, sheep will start to work their way east, where prices in saleyards this week averaged 517¢/kg cwt.

What does it mean/next week?:

It looks like the 720-750¢ level is the limit for lamb processors. There were some pens of lambs reportedly making 800¢ this week though, and these were the highly sought after well-finished lambs. There’s not many of them about at the moment. Interestingly, there might be potential for a little more upside for mutton.

It has been a long week for Mecardo’s resident ‘football’ nut in Ballarat, breaking up a busy week with a late night only to see the Socceroos going down two-nil. This correspondent is more interested in the local brand and is hoping the Demons can emulate the form of lamb and mutton this week, and get back on the rising trend.

We weren’t going out on too much of a limb by predicting the Eastern States Trade Lamb Indicator was going to hit a new record by the end of the week. At least it was right, the ESTLI closed Thursday at 710¢/kg cwt (Figure 1).  A couple of years ago we also predicted this but got it wrong. Demand has caught up, and supply seems to be seriously on the wane.

We have concentrated on the goings-on in the east this week, but lamb and mutton in WA have also rallied, albeit to a lesser extent.  The WA Trade Lamb Indicator (WATLI) has gained 50¢ since the end of April and while not matching the ESTLI this week, at 647¢/kg cwt it’s only a week behind (Figure 1).

Mutton is somewhat defying the live export issues in the west, with the WA Mutton Indicator gaining 62¢ in June to hit 431¢/kg cwt (Figure 2).  This is still 82¢ behind east coast values, which equates to around $16 on a 20kg cwt sheep.  The rally in east coast price might be propping up the west, as demand can draw sheep across the Nullabor.

What does it mean/next week?:

This week’s rally in sheep and lamb markets has occurred in the absence of any real rain.  We’ve had a couple of reports of the dearth of sucker lambs which normally come out of NSW at this time of year, and this is obviously helping to drive the market.

All indicators are pointing towards continued strength for sheep and lamb for the short term, and hopefully, the Demons can emulate the ovine strength, rather than the Socceroos form.

Mutton and Restocker Lambs benefit most from a sharp decline in yarding levels this week across the East coast sale yards. Although, its Merino and Heavy Lambs that are currently top of the table when it comes to year on year price performance this Winter.

Figure 1 highlights the price moves this week at the East coast sale yards with most categories gaining 10-30¢. The Merino Lamb and the Eastern States Trade Lamb Indicator (ESTLI) were the only two categories to register a slight decline, finishing 0.5% lower at 651¢/kg cwt.

Don’t feel too bad for the Merino Lamb’s lacklustre performance this week as on a year on year basis prices are sitting 3.5% higher and a rampaging wool market are likely to keep Merinos in favour for much of this season.

The lack of Heavy Lambs in NSW and Victorian sale yards compared to this time last year is helping to keep prices supported. Heavy Lambs gained 12¢ this week to sit at 659¢/kg cwt, 3.7% higher than this time last season. Indeed, over the last month, yarding levels of Heavy Lambs at Victorian and NSW sale yards have been running around 10% below the seasonal average and 30% under what they were during 2017.

Lower throughput was a pattern repeated across the broader East coast lamb and mutton markets this week with a 28% decline in lamb numbers (Figure 2) and a 47% drop in sheep numbers (Figure 3), to see both weekly throughput measures back under their respective seasonal average levels for the first time in nearly two months.

Below average Trade Lamb yardings in the West over the past few weeks is helping to keep prices supported in WA too with the WATLI 1% higher on mid-week price quotes at 634¢/kg cwt. Although the big news in WA sheep circles this week was the worrying announcement by Livestock Shipping Services (the second largest live sheep exporter out of WA) that they are placing a temporary halt on their Australian operations and focusing on the South American live sheep trade.

What does it mean/next week?:

The rainfall forecast for the week ahead points to some moderate falls for Eastern NSW, South East Queensland and WA, but little elsewhere. It’s probably not enough to get prices surging but if the dwindling supply continues that should provide enough support to keep prices reasonably firm in the short term.

The rain this week probably wasn’t as good as might have been expected. However, whether it’s the rain, or simply declining supply, good lamb prices are rallying and now sit just below the record levels of last year.

The Eastern States Trade Lamb Indicator (ESTLI) is finally making a run towards what could be called winter highs. The last three weeks have seen the ESTLI gain 54¢, or 9% to hit a five-month high of 654¢/kg cwt. Figure 1 shows the ESTLI sitting just below the same time last year, the first time in four months it has even been close.

As we would expect, it seems to be tight supply pushing the market higher. Lamb slaughter is trending down, as shown in Figure 2. This was helped last week by seasonal maintenance slowdowns in South Australia. The major slaughter states of NSW and Victoria have only seen slaughter rates decline marginally.

Mutton prices were steady this week, and unlike lamb values, are still 10% behind the levels of this time last year. This should really be no surprise given sheep slaughter is still running 37.5% above the same time last year. Sheep yardings are also still well ahead of last year’s levels.

In the West lamb and sheep prices were steady this week, both at levels behind the eastern states. WA values are still well behind last year’s levels, but there is still some upside with export demand running strong.

The week ahead

The bit of rain which has fallen isn’t going to be enough to finish autumn lambs, there will have to be some follow up. We might see the flow of female or merino wether lambs for a few weeks however, as growers take a wait and see approach. This leaves a nice supply gap over the coming weeks, and possibly rising prices if there aren’t too many more maintenance shutdowns.

For the first time in a while, there is the prospect of 25-50 mm of rainfall into parts of southern NSW desperate for some relief. Falls are expected to extend into South Australia and Victoria and this has encouraged a drop in lamb throughput levels this week from the elevated trend we have seen during May, in turn providing a boost to lamb prices.

Table 1 highlights the sale yard price movements across the east coast, with gains between 2-6% noted for all categories. East coast Restocker Lambs are benefiting most from the wet forecast with a 6.1% lift to see it back above 600¢. The Eastern States Trade Lamb Indicator (ESTLI), not quite as robust a performance but still a respectable 2.7% lift to close at 636¢/kg cwt.

Figure 1 outlines the Bureau of Meteorology’s forecast for the coming week in terms of rainfall and although a long way yet from satisfying the parched areas of NSW, it’s a welcome relief. Lighter falls of up to 10 mm are expected to extend to northern NSW but the bulk of the rain will centre upon Victoria and the southern regions of NSW and South Australia.

The wetter outlook seems to have weighed on east coast lamb throughput this week which staged a 13% decline (Figure 2). This brings lamb throughput back in line with the seasonal average levels for this time of year and is 8% softer than for the same week last season. East coast lamb yardings are now back to more normal seasonal levels after spending much of May above the usual range.

In contrast, east coast mutton throughput remains elevated, underpinned by persistently high NSW mutton yarding levels. Indeed, NSW mutton throughput currently sits 105% over the seasonal average for this time in the year with over 63,000 head changing hands this week at NSW sale yards.

What does it mean/next week?:

The rain due this week should continue to provide support to lamb and sheep prices in the short term. The prospect of supply beginning to tighten as we head further into winter should keep prices fairly robust into the coming few months.

Since hitting a peak back at the start of the year, lamb prices have eased and found somewhat of a base around the 600¢/kg cwt mark. We know that strong demand has been driven by export markets, but there appears to be a limit to how much the local consumer is prepared to pay for their lamb.

Retail red meat prices have flatlined for over a year at the top of the historical range. Driven by high livestock prices and competition from export markets, retail lamb reached a record of just over $15/kg back in January 2017.

Since then, retail lamb prices have basically tracked sideways (figure 1). Chicken prices have also been steady, while the March quarter saw beef prices record a 1% increase to set a new all-time high of $19.51/kg.

Retail lamb has spent the last three quarters at close to a 180% premium to the chicken price, a similar level it reached at the end of 2012. Compared to beef, however, lamb remains relatively cheap at the retail level, at a 23% discount.

When lamb price peaked in 2011 they got within 5% of beef prices at the retail level, and this saw some consumer resistance and subsequent weaker domestic demand. Despite being cheap relative to beef, the strong premium to chicken, and pork, might have put a lid on how much further retailers can push prices.

With the retail lamb price being steady in the March quarter, the falling Eastern States Trade Lamb Indicator (ESTLI) is seeing the lamb price making up a smaller proportion of the Retail Price. Figure 3 shows the recent decline in the saleyard price has the ESTLI back at 41% of the retail price. Around 40-41% has been the low since the start of 2017, while the ESTLI has been as high as 45%.

What does it mean/next week?:

The fact that retail lamb prices have been steady for the best part of a year suggests that consumers are now relatively comfortable with the record values  This is good news for saleyard lamb prices.  However, lamb is priced at a historically comfortable level relative to beef and is expensive compared to chicken. The concern for lamb retail prices will come if the lower cattle values we are seeing flows through to retail level. Lower retail beef price might put some pressure on domestic lamb demand.

There is a little room for saleyard lamb prices to improve relative to the retail level, so there is some upside potential.  Importantly, retail lamb prices can also fall without necessarily taking saleyard lamb prices with them.