Category: Sheep

A firm recovery in price across all east coast categories of lamb and mutton reflecting the underlying tight supply anticipated this season to see the Eastern States Trade Lamb Indicator (ESTLI) surge to fresh highs, closing at 664¢/kg cwt yesterday – a gain on the week of 7.4%.

The stellar performance of the ESTLI so far this year reflected in the seasonality percentage price gain chart displayed in figure 1, showing the gains since the start of the season extending beyond the “normal” range (as represented by the green band showing where seasonal price gains have fluctuated 70% of the time over the last decade). Strong weekly gains not limited to trade lambs with the east coast heavy lamb up 7.3% to 671¢, Merino lamb up 5.6% to 596¢ and restocker lamb up 13.4% to 754¢/kg cwt.

East coast mutton also enjoying some upward momentum on the week, reflective of the trade and heavy lamb gains, to see it rise 7.5% to 441¢/kg cwt. Figure 2 showing the seasonal percentage gains for mutton so far this year respectably tracking along the ten-year average pattern. Although the price pattern for mutton not as robust when compared to the ESTLI performance and the pattern set by mutton during the 2016 season.

Figure 3 highlighting the underlying tighter supplies of lamb and sheep this season with the combined east coast lamb and mutton slaughter levels continuing to trend below the 2016 pattern and under the five-year average for this time of the year.

To read more about the expected tight supply during 2017 and our ESTLI forecast released in December 2016 click here.

The week ahead
Autumn generally heralds a period of price consolidation for the ESTLI as shown by the sideways movement of the ten-year average seasonal percentage price gain pattern – figure 1. This would suggest that the ESTLI will find it difficult to continue to post the impressive gains recorded since the start of the season and will likely trend along the top of the green band until the next price surge as we head into the usual winter peak.

Interestingly, projecting a percentage price gain mirroring the top of the green band during winter 2017 of around 35% on the starting price this season of 549¢ would place the winter peak for the ESTLI at around 740¢ – not far off our ESTLI forecast released in mid-December 2016 calling for a winter peak of 750-755¢ (see link above).

The very high prices seen last week had the desired effect for processors, drawing out very large lamb numbers, and sending prices lower. Sheep are a bit of a different story, especially in Victoria, where yardings waned, and as such prices have largely held their ground.

Figure 1 shows East Coast lamb yardings increased by 15,529 head this week or 7.6% to record their highest February weekly yarding in at least 11 years. No doubt the extra high prices of last week led producers to send anything which was ready to market.

The result of the influx of lambs was lamb prices not quite returning to the prices of a fortnight ago. The Eastern States Trade Lamb Indicator (ESTLI) fell 28¢ this week to sit at 618¢/kg cwt, still a very solid level. The fall was strongest in Victoria, where trade lambs lost 45¢, or 7%, and moved back into line with NSW and SA.
Mutton yardings only managed a marginal rally, increasing 4.8% to sit at almost exactly the same level as last year. Mutton prices reacted to an extent, falling less than 10¢ in NSW (404¢) and Victoria (444¢), but increasing 13¢ in SA to 402¢/kg cwt.

In WA lamb prices continued to play catch up to the east coast, with the WA Trade Lamb Indicator (WATLI) hitting a 19 month high of 548¢/kg cwt (figure 3).
Lamb yardings in the West were up by 62%, with rising prices an indication that export demand is possibly increasing. This improves the prospects for sustaining current strong prices over the coming months.

The week ahead
The south west of WA is set for some very strong rainfall in the coming week, which could see the continuation of rallying prices there. In the east the question is whether this week was the start of a run of lambs, or whether the strong prices pulled out all that is ready. If it is the former prices will continue to ease, if it’s the latter we might see another spike, or at least prices tracking sideways.

Key points:

• The most recent peak in NSW mutton prices in deflated terms (current day dollars) occurred during April 2011 at 523¢/kg cwt
• The long term average deflated NSW mutton price is 239¢ based on data going as far back as 1949
• Since 1949, NSW mutton prices have spent 70% of the time between 115¢-362¢ and 95% of the time between 0¢-485¢

Last week Mecardo released an article on long term deflated prices for the Eastern States Trade Lamb indicator (ESTLI) and this week we have published a similar analysis focusing on long term mutton prices, looking at NSW mutton prices since 1949.

Click here to read the deflated ESTLI article.

Figure 1 shows the price pattern for both nominal and deflated average monthly NSW mutton prices going back to 1949. Clearly, the 2016 season was a good one for mutton prices and the 2017 season bodes well with the NSW mutton January average of 394¢/kg cwt just sitting 15.4% shy of the nominal average monthly peak that occurred during April 2011 at 466¢. In deflated terms the current mutton prices are holding up well too with a deflated peak in 2011 at 523¢, not too far away from the current level.

Indeed, figure 2 highlights just how well mutton prices have been in current day dollars with the market sitting well above the long term deflated monthly average of 239¢/kg cwt – (blue dotted line). The green 70% range between 115¢ – 362¢ shows were deflated mutton prices have traded for 70% of the time since 1949 and the red lines show the range that encompasses 95% of the variation in price (0¢-485¢/kg cwt) over the same time frame.

Figure 3 displays the same deflated mutton price series overlaid with percentile ranges which shows that the current average monthly NSW mutton price has remained in the 80-100^th percentile range since April 2016. Unquestionably, mutton prices are holding firm with the January average of 394¢ sitting at the 90^th percentile when compared to the deflated price data series since 1949.

What does this mean?

As outlined in the “Mutton hitting the ceiling” article from last week (see link above) there is a case for mutton prices continuing to firm into the 2017 season. While the deflated data suggest we are at reasonably high historic levels there have been times in the past when mutton prices were higher in real terms.

NSW mutton prices wouldn’t be considered to be at extremely high levels until above 485¢ and have reached as high as 523¢ (in current dollar terms) within the last five years, so mutton prices near or slightly above 500¢ this season aren’t out of the question.