Category: Sheep

A number of mixed market signals this week across state saleyards for sheep and lamb, as the seasonal Spring price decline looms. Needless to say, on a countrywide level all categories posted price increases between 0.2% to 3%, apart from Restocker Lambs with the national saleyard indicator off 1.2% to 679¢/kg cwt.

The Eastern States Trade Lamb Indicator (ESTLI) was up 1.3% to 628¢, a gain mirrored by the National Mutton Indicator which staged at 1.4% lift to 422¢/kg cwt. Victoria was the only state to show significant increases to lamb throughput this week, with a 12% rise in yardings to see over 83,000 head recorded – Figure 1. All other states registered flat to lower lamb throughput with the East coast lamb throughput tracking sideways.

This was not the case in the West, as producers responded to last week’s drop in trade lamb prices to see WA lamb yardings off 23% – Figure 2. The tighter numbers are giving the Western Australian Trade Lamb Indicator a boost, up 18.5% to 520¢, although it is still sitting over $1 below its East coast counterparts.

Mixed signals were received in mutton markets too this week as higher East coast sheep throughput unable to dampen prices, signalling demand remains firm on the Eastern seaboard. The East coast saleyards reporting a 20% lift in numbers to 84,600 head, buoyed by higher mutton yardings across all of the Eastern states – Figure 3. In contrast, WA mutton markets are showing a textbook response to higher mutton supply, with yardings up 22% and the WA mutton indicator off 2.3% to 304¢/kg cwt.

The week ahead

It’s not uncommon to get mixed signals as markets begin a change in trend. Certainly, the increasing lamb throughput for Victoria has a way to play yet, as we sit about mid-way through the Spring flush. The seasonal supply boost as we head toward Summer should start to weigh on the ESTLI in the next week or two, particularly as it begins to dry out in the south.

The rainfall pattern expected for the week ahead broadly replicates what we saw last week, although slightly lighter falls are expected for NSW while SA and Eastern Victoria are set to benefit from a bit more moisture.

Sheep and lamb yardings had another strong week, with Victorian lambs starting to run. Yet prices continued their solid reluctance to fall, maintaining levels well above last year in the east. Things are easing in the west, but also remain better than last year.

Figure 1 shows east coast lamb yardings for the week ending the 27^th, and individual yardings suggest that Victorian lambs are starting to hit the market. Ballarat yardings were up to 40,500 head, while Bendigo remained strong at 34,000 head.

Usually the Victorian lamb run is what pushes yardings higher in November and December, but now it is just adding to already above average yardings in South Australia and NSW. Yardings in WA jumped 41% higher, and are well above normal for this time of year (figure 2).

Higher yardings in WA saw the West Australian Trade Lamb Indicator (WATLI) fall sharply, losing 44¢ to 521¢/kg cwt (figure 3), a nine month low. Despite being lower, the WATLI is 80¢ stronger than this time last year, even with higher yardings.

Last year the ESTLI followed the WATLI lower, after about a month delay. We keep saying we expect the ESTLI to ease in the spring, but there is only a month of spring left, and prices remain strong.

Mutton markets were the star performers this week, with the Victorian Mutton Indicator moving back to 450¢/kg cwt, and NSW not far behind. In contrast SA mutton is lagging around $1/kg cwt behind, or $20 on a 20kg cwt Merino. This suggests that supply in SA is starting to outstrip slaughter space in SA.

The week ahead

We keep saying the ESTLI can’t defy gravity for too much longer; and with cheap lambs in WA, export demand might start to come under some pressure. Last year we saw that the market declined 60¢ from the start of November through to Christmas as supplies ramped up.

Demand is stronger this year, and a 60¢ decline would see markets still at historically strong levels, but price will make current January forward contracts look attractive. More on this next week.

Trade Lamb prices are continuing to defy gravity, and carrying other categories along with them.  Store lamb prices are at record highs for October, and some forward contracts have just been released.  The equation is pretty simple for January, when prices can be locked in, with profits likely to be smaller for lambs sold in December.

The recent strength in lamb prices has restockers starting to get a bit excited.  Figure 1 shows a strong rally in the National Restocker Lamb Indicator last week, as it sits at 699¢/kg cwt.  In dollar per head terms the indicator is sitting around $105 per head.

There is usually plenty of variability in the restocker price in ¢/kg terms, as the average weight can change week to week, and sometimes this doesn’t impact the dollar per head price as significantly as it would for trade or heavy lambs.

Restocker lambs are now at a record level for this time of year, and sitting around 90¢, or 15% above the same time last year.

If we assume trade lambs weigh 20kgs cwt, and restocker lambs 16kgs, and skin values is the same, the spread between restockers lambs and the ESTLI in dollars per head is shown in figure 2.  The ESTLI premium has been creeping lower, and at the end of last week sat at $12.4/head.  Basically this means 20 kg cwt trade lambs were making just $12.4 more than 16kg cwt restocker lambs.

Generally a narrow spread between restocker and trade lambs is driven by abundant feed, as producers opt to hold lambs in favour of weight gain, forcing store buyers to pay more.  So the question is whether there is any money in buying lambs are current prices.

Figure 3 shows some rough numbers on buying lambs at current prices, and selling at our worst, expected and best case price scenarios.  Finishing on grass, and getting the current trade lamb price will provide a pretty good return, which is what buyers are banking on.

What does this mean?

Getting the current price of around 630¢ would be our best case scenario, as we think there will still be a flush of lambs, and lower prices in December.

Our expected price for December is 580¢, which is likely to be close to break-even after costs are taken out, while a loss will be made at last year’s December price of 520¢/kg cwt.  Obviously it is hard for those feeding lambs at the moment, with store lamb prices, grain prices and finished lamb prices not really stacking up unless prices continue to rise.

Just yesterday forward contracts were released for January ranging from 580¢ to 630¢.  If lambs can be carried that far on grass then a profitable outcome should be able to be locked in now.

Spring in general, and October, in particular, are known for falling lamb prices.  We usually see supply increasing as winter and spring lambs hit the market, pushing all sheep and lamb markets lower.  The price rally this week is particularly unusual.

This week the Eastern States Trade Lamb Indicator (ESTLI) rallied 19¢ to hit a 13 week high of 621¢/kg cwt.  The ESTLI has only traded higher in October over July one other time in the last 10 years.  In 2011 the lamb price trend looked very similar to this year.  There could be a warning in this, as prices declined after Christmas.

There is a key difference in supply between this year and 2011 however. Figure 2 shows that back in 2011 lamb slaughter didn’t really increase from winter lows, hence the steady price.  This year we have seen a solid jump in lamb slaughter, to the point where it is running 10-15% ahead of last year.

We keep saying it, but strong prices, and strong supply mean stronger demand.

After a couple of weeks of intermittent supply data, sheep slaughter has hit 136,925 head (figure 3), the highest level since the end of 2015.  Remarkably, mutton prices also rallied this week, the National Mutton Indicator gained 24¢ to sit back at 397¢/kg cwt.

In the West prices are lagging behind.  Despite gaining 14¢ to 556¢, the WATLI is currently 65¢ behind its east coast counterpart.  The WA Mutton Indicator fell 35¢ to 288¢.  This is not as low as a fortnight ago, but still the cheapest sheepmeat in the country.

The week ahead

When prices rise like lambs did this week, it’s an indication that buyers are looking for more lambs. Its likely restockers are helping drive the market, with NSW rainfall this week being widespread.  Whether higher prices are enough to draw more lambs to the market while it’s raining is yet to be seen, but we do know that growers who sell lambs in October have never had it so good.

Despite the beginnings of Spring flush being fairly evident at the saleyard this week, prices managed to gain across all categories of national lamb and sheep markets. Seemingly, a Friday the 13^th close to the week a lucky one for ovines.   

The Eastern States Trade Lamb Indicator (ESTLI) gaining 1% to close at 608¢/kg cwt, while some fairly erratic mutton prices out of NSW over the last fortnight assist the National Mutton Indicator up 10.3% on the week to close at 386¢/kg cwt – figure 1.

National lamb saleyard indicators posting some decent gains too with Restocker Lambs up 5.5% to $103 per head and Light Lambs 6.2% higher to see them back above $6. Price rises were evident pretty much across the board for Victorian, NSW and SA state saleyard categories with NSW Merino Lambs the only category across those three states to see a price fall this week, and a marginal one at that, down just 1.9% to 523¢/kg cwt.

The firm prices were unable to be weighed down by increased volumes at the saleyard along the East Coast for both lamb and mutton with throughput levels up 2.1% and 28.5%, respectively. The lamb yarding pattern for SA and Victoria continuing to show evidence that the seasonal Spring flush is underway with both states continuing to trend above the 2016 trend, and higher than the long term average for this time of the year – figures 2 and 3.

The week ahead

The BOM rainfall forecast for the next week showing reasonably good coverage across all of the East Coast and a bit of a light sprinkling for SA and WA. This will continue to provide some support to lamb and sheep prices in the short term, although the spectre of increased supply as the Spring flush gains momentum should act as a bit of a headwind. Prices most likely to consolidate in the near term; have a safe and lucky Friday the 13^th.

Lamb prices have defied the odds to remain relatively steady for the fifth week straight.  It’s highly unusual for prices to trade in such a narrow range for so long, and there is no doubt they will break out at some stage.  Mutton prices haven’t had the same luxury, continuing to slide this week in spite of weather forecasts.

It’s been a strange week for mutton markets.  We must point out that Monday was a public holiday in NSW, which might have thrown indicators out a bit, but shouldn’t have accounted for the Mutton Indicator falling off a cliff.

Figure 1 shows NSW Mutton has gone from similar to last year’s levels, to just below the five year average, at 264¢/kg cwt.  NSW mutton is now half the price it was in early June.

The decline in mutton prices was not confined to NSW, in SA we saw a 93¢ decline to 265¢/kg cwt.  In Victoria mutton values were steady, gaining 3¢ to 373¢/kg cwt.  So either NSW and SA prices are way out of whack, or Victoria’s are, and normal trade flows will see prices converge in some way or another.

The Eastern States Trade Lamb Indicator (ESTLI) has defied downward pressure from mutton, and remained steady at 602¢/kg cwt.  The ESTLI has traded between 597¢ and 607¢ for five weeks and between 574 and 633¢ since the start of July.

It was the second week in October when the ESTLI fell off the cliff last year, and the weakening mutton values don’t paint a great picture for lamb over the coming weeks.

The week ahead

Figure 3 might see a bounce in mutton prices after this week’s fall.  A reasonably large proportion of the NSW sheep population will get pretty wet over the coming 8 days, while things will keep ticking along in Victoria.  It’s hard to see lamb values maintaining these values indefinitely, so if lambs are up to trade weight, the time to sell at 600¢ is running out.

The Australian Bureau of Agricultural and Resource Economics (ABARES) have put out their quarterly Agricultural Commodities Report, and amongst the numbers there were some interesting sheep and lamb forecasts.  This week we take a look at whether lamb prices can achieve another year on year increase, as predicted by ABARES.

We’ll get to the price forecasts, but first some interesting supply numbers.  ABARES are producing financial year forecasts, which are not directly compatible with Meat and Livestock Australia’s (MLA) calendar year forecasts, but the differences are interesting.

ABARES are expecting a solid jump in the sheep flock this financial year, with the June 30 2018 flock pegged at 73.2 million head.  A flock of just above 73 million head would be a 3.2% increase on the June 2017 numbers, on the back of a 5% increase over the last year (figure 1).

MLA are forecasting a sheep flock of just 68 million head at the end of 2017 and 71 million for the end of 2018, so ABARES are much more bullish on the flock rebuild, forecasting a flock around 2 million head higher, and at a five year high.

ABARES expect the stronger flock to translate into stronger lamb slaughter.  Figure 1 shows that 2016-17 slaughter was at a three year low, but is expected to increase 2%, to almost match the 2014-15 lamb slaughter number.

Normally a forecast of a larger flock, and higher slaughter, would be accompanied by a lower price forecast.  ABARES are actually expecting lamb prices to rise, with the average for 17/18 to post a 5.6% increase to set a new record high of 625¢/kg cwt.

Figure 2 shows how lamb slaughter and financial year average prices have been related over recent years.  Demand has been increasing regularly, but the 16-17 price rise was due to tighter supply, not increased demand.

If ABARES slaughter forecast is correct, we’ll have to see demand increase to reach an annual average of 625¢/kg cwt.  Back in 14-15, when lamb slaughter was similar to that forecast for the coming year, prices were back at 518¢/kg cwt.

Key points:

• ABARES quarterly commodity report is forecasting a five year high flock and increased slaughter rates.
• The report also forecast a rise in lamb prices, despite higher supply.
• An annual average of 625¢ would see highs over 700¢, and lows at around 550¢.

What does this mean?

If lamb prices average 625¢ in 2017-18 it will be a great year for lamb growers.  Normally the Eastern States Trade Lamb Indicator (ESTLI) ranges around 75¢ around the average. The ABARES forecast would see the ESTLI reach highs of 700¢, and lows of 550¢, which is great money during the peak supply period.

Unfortunately we think the ABARES forecast might be a bit strong, and prices might average a bit lower.  We have however seen solid price resilience so far this spring in the face of increasing slaughter, so perhaps demand is stronger. Though it’s unlikely to be strong enough to counteract the higher slaughter rates forecast by ABARES.

Fairly erratic moves to the state mutton prices this week but they all evened each other out to see the National Mutton Indicator just 3¢ softer to 370¢/kg cwt. Marginal prices changes the order of the week it seems with the Eastern States Trade Lamb Indicator continuing to dance around the $6 area, posting a 5¢ gain to close at 603¢/kg cwt.

East coast sheep throughput remains above the 70% range and despite the elevated numbers the national price remained fairly steady on the week – figure 1. In stark contrast to the state saleyard mutton indicators which all had their share of action. Victorian mutton off 5.9% to 370¢, NSW mutton 8.5% lower to 376¢ and SA mutton recovering from last week’s price drop with a 27.4% gain to 358¢. In the West mutton replicating the SA experience with a 21.9% boost to 329¢, while Tasmanian mutton had a shocker with a 25.7% decline to 251¢/kg cwt.

East coast lamb throughput showing a similar story to sheep throughput with yardings remaining above the 70% range and quite elevated for this time of the year – figure 2. The high sheep throughput being held up by above average numbers at saleyards mainly centred in NSW. The lamb throughput supported by NSW and Victorian flows, the only two states with yarding figures trekking above average for this time of the season.

National lamb saleyard indicators somewhat mixed this week with Restocker lambs the star performer, boosted by a recovery in WA Restocker prices, to see it up 10% to $97 per head. Merino lambs the laggard, weighed down by Victorian Merino, to register a 3% fall to 523¢/kg cwt. National Trade and Heavy lamb managing to hold above the $6 mark, closing up 1% (604¢) and 2.2% (607¢), respectively.

The week ahead

The recent Victorian lamb yarding pattern suggest the beginning of the Spring flush is underway which is likely to start to see some price pressures for the ESTLI in the coming weeks. Although, the updated Bureau of Meteorology rainfall outlook for October (figure 3) signals a move to a much wetter NSW which will provide some welcome relief to producers there and price support on dips.