Tag: Sheep

An early call on lamb supply

Posted on by Caitlin Dearden

Spring is well and truly here, but the spring lambs are not quite. We usually start to see lamb slaughter show weekly increases from mid-July through to mid-October. This year all we have seen is slaughter declines.  August and September are likely to post their weakest slaughter rates since at least 2009. The question is, how is this going to impact supplies for the rest of the year?

The latest Australian Bureau of Statistics (ABS) slaughter data released in early September showed a strong 9.6% increase in lambs slaughter in July compared to year-earlier levels. Higher prices and dry weather encouraged turnoff of the last of old season lambs. It’s also likely that the 158,700 extra head was made up of Merino wethers and both Merino and maternal meat breed ewe lambs which were previously destined to boost flocks.

We know from Meat and Livestock Australia’s (MLA) weekly slaughter statistics that lambs slaughter has taken a serious hit since the end of July as the new season supply failed to materialize. Figure 1 shows our estimate of where the official slaughter numbers might sit for August and September.

August lamb slaughter is likely to be down 20% on 2017, and September is currently running 30% lower. We haven’t seen August and September lamb slaughter this low since at least 2009 and could be the lowest since 2005. Figure 2 shows that in 2009-10 and 2005-06 lambs slaughter levels finished up at 20.4 and 17.3 million head respectively.

In a normal season, we assume that low slaughter early in the season will mean more lambs will come to market later. This is based on steady or rising annual slaughter rates. The Australian Bureau of Agricultural and Resources Economics and Sciences (ABARES) forecast 2018-19 lamb slaughter at 23.5 million back in June.

It’s becoming clear that lamb slaughter is not going to reach the levels seen in 2017-18, with marking rates well back. We really are in the dark as to how many lambs are out there, but we can use historical slaughter rates at a guide. Figure 2 shows where we expect financial year slaughter to sit at with high (ABARES forecast), medium (21 million head) and low (19 million head) levels.

It indicates how the forecast slaughter levels will play out if we deduct what has already been slaughtered and if annual seasonality is applied to the remaining nine months.

What does it mean?:

If we somehow manage to find 23.5 million head of lambs to slaughter in 2018-19 supply will be well above last year for the remaining months. The medium and low scenarios show a significant monthly supply gap despite the slaughter declines we’ve already seen.

In terms of price, the medium and low slaughter forecast levels take prices to new records. Figure 3 shows our demand curve and extends it to slaughter of 19 and 21 million head. Under the demand equation we’ve seen in recent years it gives average prices of 1059 and 800¢/kg cwt. We don’t expect prices to move through $10 this year, but lower slaughter paints a positive picture for prices.

Spring lambs on the mind

Posted on by Caitlin Dearden

Coles and Woolies are already sprucing new spring lambs on their shelves, and we can see where they’re coming from with rising yarding levels in the south telling us the spring flush is making its move. This has already begun to take its effect on prices, with another week of declines for most lamb categories.

Victorian lamb yarding’s are starting to show signs of the spring flush. September totals for Victoria are currently sitting at 5% above year-ago levels and this is providing a boost to east coast numbers. The total east coast yarding’s were 151,018 for the week. Although 17% lower than 2017, it’s still sitting 8% above the 5-year average for this time of year (Figure 1).

The rising throughput is flowing through to affect the Eastern Indicators. The Eastern States Trade Lamb Indicator fell 19¢ on the week to see it at 773¢/kg cwt. Heavy lambs weren’t able to hold onto their levels for another week, posting a 35¢ drop to 783¢/kg cwt. Restockers were the exception to the falls, managing to finish the week slightly higher (4¢). There’s still a long way to go before we see these prices close in on last year figures.

Mutton prices were again able to largely avoid the fate of lamb prices. The mutton indicator ended the week at 489¢/kg cwt, down just 2¢ on last week. The holding sheep prices in the face of declining lamb prices appears to be encouraging some supply forward. East coast sheep yarding’s have jumped a massive 57% higher in the last week, thanks to spikes in NSW and Vic (Figure 2).

What does it mean/next week?:

As covered in this week’s analysis article, we can’t see lamb supply matching last year’s levels through all of spring. This immediate rally in supply is likely to be mopped up relatively easily by processors.

If supply does continue to increase due to dry conditions, there will be some pressure on prices, but this impact should be short-lived.

The quid pro quo is that with available numbers more likely to be less than the 2017/18 season, tight slaughter supply is likely to maintain upward pressure on prices. The spring flush of supply could again have a limited corresponding decline in spring lamb prices, similar to the past two seasons.

Wool market creeps up.

Posted on by Caitlin Dearden

The AWEX report captured the wool market sentiment this week – it “crept up.” On the first day of sales the EMI pushed close to the 2,100-cent level, before easing slightly on the final day, but in the end, it had regained the minor fall of last week.

 The Eastern Market Indicator (EMI) rose, lifting 6 cents for the week to finish at 2094 cents in AU$. With the AU$ finally having a stable week, the EMI in US$ terms also lifted 6 cents to settle at 1,503 US cents (Table 1).

The current market level is encouraging sales, and wool producers are obliging with minimal pass-in rates. This week at auctions only 2.7% didn’t meet growers reserve. This resulted in a clearance to the trade of 33,160 bales, passing in only 900 bales. This caused a reduced dollar value compared to last week of $82.85 million, with a combined value of $679.8 million so far this season.

In the six auction weeks since the winter recess, 216,780 bales have been cleared to the trade, 20,760 fewer than the same period last year. While there would have been some reserve grower stocks inflating last year’s figures, the average 3,500 bales per week fewer this year is worrying for processors (Figure 2).

The combination of the drought causing reduced fleece weights predicted for the coming months, as well as the significant sheep slaughter this year, looks likely to be all negative for wool supply going forward.

While buyers bid strongly to secure wool, growers can accept strong prices across the board and look forward with some confidence.

As for the Merino section, X Bred lifted slightly, skirtings followed in their wake while cardings were slightly easier.

The week ahead

The offering this week was 4,000 bales fewer than last week, next week a slightly larger offering is rostered of 36,500 bales with all centres selling.

Lambs tank but only to OTH levels.

Posted on by Caitlin Dearden

Lamb markets continued to tank this week. It shouldn’t really come as a surprise, with the previous 850¢+ levels clearly unsustainable. Interestingly, over the hooks prices rallied, with saleyards and direct prices converging.

All lamb prices were smashed this week. The east coast indicators finished Thursday between 97¢ (restocker) and 43¢ (light lamb) lower, all back in the 700s, except for heavy lambs which managed to stay at 818¢/kg cwt.

Prices are, however, still way above the same time last year. The Eastern States Trade Lamb Indicator (ESTLI) has fallen 92¢ from the high but remains nearly 200¢ above the same time last year.  Prices may be down, but they are still very good.

Over the hooks prices continued to move higher this week, following saleyards in order to get supply. With the ESTLI falling back to a comparable level to over the hooks rates (Figure 2), processors should be starting to get some more lambs direct. Perhaps this is why saleyard values have lost some ground.

Mutton prices were stoic in the face of falling lamb values. As noted last week, mutton prices are still relatively cheap and processors are no doubt trying to fill up kills on animals which might still be making some sort of margin. The National Mutton Indicator rallied 10¢ for the week to a two month high.

It looks like lambs are starting to move in the West as well. Trade lamb prices fell 28¢ to 633¢/kg cwt, while mutton lost 34¢ to 428¢/kg cwt. With prices still historically very strong, there shouldn’t be any complaints about the lower values.

What does it mean/next week?:

The question now is how far lambs prices can fall. Supply can ramp up, but only to a point as we know the ability to finish lambs this year is limited. Values above 750¢ are likely to continue to encourage anything that is at trade weights to hit the market, but if they fall below 700¢, sellers might take a punt on putting more weight on and looking for upside.

Is mutton due for a moment in the sun?

Posted on by Caitlin Dearden

The Eastern States Trade Lamb Indicator (ESTLI) eased this week despite declining supply at the saleyard and low slaughter figures, suggesting softening demand. In contrast, mutton prices have managed to gain ground despite stubbornly high throughput numbers for the last month and very much above average slaughter figures. Perhaps there’s something other than saleyard volumes and slaughter levels impacting the price at present.

The weekly trend in throughput for the 2018 season for lamb and sheep is highlighted in Figure 1, along with the respective five-year average pattern for yarding levels. Lamb throughput has dropped 30% from the previous week and sits 23% below the seasonal average. The low supply of lamb at present is replicated in the weekly lamb slaughter figures which are running 25% under the five-year average.

In contrast, sheep yarding has been holding firm above the average trend for eleven weeks now and currently sits 57% higher than the seasonal average. High saleyard numbers of sheep are flowing through to elevated mutton slaughter levels with the weekly sheep slaughter running 50% above the five-year average level.

Despite the alternative supply scenario for mutton and lamb, this week prices have responded against conventional wisdom with the ESTLI dropping 3% to close at 855¢/kg cwt while East coast mutton has managed to firm 2% to hit 481¢/kg cwt.

Perhaps the missing element is demand and more specifically offshore buying. Recent trade figures have shown declining volumes for lamb exports while mutton export levels have managed a stellar performance over August.

What does it mean/next week?:

A clue to the waning offshore demand for lamb and the firmness of offshore mutton markets could be the relative historic levels of each commodity in foreign currency terms.  The ESTLI is US$ terms has been approaching levels unseen offshore since the 2010/11 peak at around 670US¢/kg cwt (Figure 2).

In contrast, the offshore mutton price in US$ terms is only marginally higher than this time last season and remains over 100US¢/kg below levels recorded during the 2010/11 highs (Figure 3).  Perhaps there is some further upside for mutton in the short term, particularly if supply begins to tighten. At the very least, mutton prices may be able to hold their ground in the face of a weakening ESTLI as the Spring flush gets underway.

Steady result for wool this week.

Posted on by Caitlin Dearden

After the volatility and interruptions of recent weeks, the wool market settled into a comfortable pattern this week with a seemingly contented balance between supply & demand at current prices.

The AU$ continues to attract focus as it jumps around on a day to day basis.

The Eastern Market Indicator (EMI) fell marginally, losing 2 cents for the week to settle at 2088 cents AU$. With the AU$ again depreciating almost 1 cent over the week, the EMI in US$ terms closed at 1,497 US cents, down 19 cents on the week. (Table 1).

News out of South Africa this week sounded remarkably similar to the local wool situation. The S.A. benchmark indicator climbed to a record 253.82 Rand, helped by a weakening currency.

After peaking at 148 million kilograms in 1966, southern African wool production has declined to about a third of that annually.

The country has about 15 million Merino sheep, with Cape Wools estimating there are as many as 9,000 commercial producers and 50,000 small-scale farmers.

Again, a relatively low pass-in rate at auctions of 4.1% for the week, resulting in a clearance to the trade of 36,927 bales passing in only 1,500 bales. This resulted in an increased dollar value for the week of $94.04 million, with a combined value of $597.0 million so far this season.

In the seven auctions held for the current selling season, the cumulative national total offering is 39,000 bales lower (-12.5%) than for the same period in 2017/18. The clearance to the trade (bales actually sold) is tracking 3,515 bales per week fewer than for the same period (Figure 2).

On the smallest national offering of crossbred wool in three years a mixed result was recorded. The Melbourne sale reported dearer for 30 MPG while cheaper for 28 MPG.

AWEX reported that Merino Cardings had only minor movements for the week and were generally unchanged.

The week ahead

Next week a smaller offering of 34,500 bales is rostered with all centres selling. With currency assisting and supply constrained we can look forward to at least a similar result as this week.

A look at cyclical price peaks in the merino market

Posted on by Caitlin Dearden

Current merino prices are mesmerising. If you doubt this, take a look at prices being paid for stains, cardings and fine crossbred wool which can be used for blending purposes let alone the price levels for the broader merino categories. This article looks at how the current merino cycle fits with past price cycles.

Wool production has changed a lot in the past half century as has the inflation adjusted value of the currency. To accommodate these effects this article uses the average merino micron price series adjusted for inflation. This focusses the price on the core merino price, and brings past price levels up to current price levels in terms of inflation.

Figure 1 shows the deflated average merino micron price from the mid-1960s through to last week, with cyclical peaks (black squares) and cyclical low (red circles) shown. The 1973 and 1988 price cycle peaks stand out in Figure 1. In inflation adjusted terms price was stable from the mid-1970s to the mid-1980s. After the collapse of the Reserve Price Scheme the inflation adjusted price stepped down and traded in a fairly well defined range through to 2016, after which is has traded to higher levels.

Table 1 is a summary of the cyclical peaks shown in Figure 1. It shows the month of peak price, the monthly average price, the size of the price change from the previous cyclical low (in the case of 1973 3.00 means the price rose by 300%) and the time taken in months to go from the previous cyclical low to the cyclical peak. The median change in price from low to peak is 0.72, however there are a few small cycles from the peak RPS decade from the mid-1970s onwards. From 1988 onwards the median cyclical rise is 0.97 (a 97% rise in price or near doubling of price) taking a little of 2 years at 25 months.

So, where does that leave the current price cycle? In price terms the current market (August 2018) has risen by 0.99 from the last cyclical low, so it is around median level for rising cycles from the mid-1980s onwards. By this price rise standard the current cycle is nothing extraordinary, which is an interesting observation.

Strictly speaking the current rising cycle has been running for 71 months but in practical terms the cycle started to lift in late 2014 so the cycle is around 47 months old in Australian dollar terms. Either way the cycle is ancient by the standards of past cycles.

This analysis is designed to provide a base rate or base pattern for a rising price cycle in the merino greasy wool market. Each cycle will vary in the conditions applicable to the cycle. For example the 1973 cycle had a general commodity boom going on, the 2002-3 cycle was a classic post stockpile boom and the 2011 cycle was really a cotton boom. The current cycle has two observable features. Firstly the starting price was relatively high and secondly supply is low and about to be limited further by dry conditions.  At this stage the price rise is what we would expect from a standard cycle.

Key points:

  • The standard rising price cycle for the average merino micron price since the mid-1980s has resulted in prices doubling from the previous cyclical low.
  • These rising price cycles have generally taken around 2 years to play out.
  • This is the base pattern for rising price cycles.
  • In comparison the current cycle has risen by 99% from the previous cycle low, close to median , over nearly 4 years (twice as long as normal).

What does this mean?

Each price cycle will have its own peculiarities, so the median rising price cycle is only a guide to the standard pattern we can expect. At this stage the pattern tells us that price, which is high as it usually is in the upper section of a rising price cycle, has risen by a normal margin, although the time taken has been much longer than normal. It is not a super cycle.

Tell the kids, there is a bit of money in rearing lambs

Posted on by Caitlin Dearden

It’s an age old question, and one that is rarely put through a rational economic test.  It’s probably of more interest to school children on farms than farmers.  But with four mismothered lambs currently residing in a small enclosure in our yard, I thought it was time to work it out.  Is it actually worth bottle raising stray lambs?

Any sheep breeder who goes around ewes would have found mismothered lambs.  Most are left in the hope that the mother will come back and pick them up, but we know that even in the best managed twinning mobs this doesn’t always happen.

So the kids want a pet lamb, we buy a bag of milk powder and get going on raising the most expensive lamb on the property.

We paid $58 for a 10kg bag of Maxcare lamb milk replacer.  It is mixed at a ratio of 190g which makes a litre of milk.  Can you believe this comes to $1.11 per litre.  That’s right, powdered lambs milk is more expensive than supermarket milk.  It probably reflects the actual value, rather than being used as a loss leader.

The recommended feeding rates are shown in figure 1, along with the cost per day and week of feeding.  Over the 34 days of milk feeding, lambs should reach a weight of 12-18kgs at a cost of $40.57.  This doesn’t include labour, as all farm kids know their labour is free.

Even 18kgs liveweight is a very light lambs, and is at the lighter end of where lambs are normally weaned.  Lambs will need to be weaned onto high quality pasture or hay and pellets to keep them growing at a reasonable rate.

Pellets and hay at 300g per day for a month will add another $5-10 in costs for another month which would get the lambs to a saleable weight of 18-22kgs.  Not many bottle reared lambs will be sold at this age or weight, but kids might can ask mum and dad for $60-90 per head depending on breed, based on what very light lambs are making on Auctionsplus at the moment.  The best lambs to rear are first cross or maternal ewes.

What does it mean/next week?:

The numbers show that there is a little bit of money to made in bottle rearing lambs if you don’t take labour into account.  Currently as lambs move up the weight scale their value increases strongly, but the rational economist would wonder why you would rear a lamb to 20kgs when you can buy them for $60.  Obviously you can’t just buy one lamb very easily or this cheaply.

You can tell the kids that if they can rear a lamb there is likely to be $10-30 in it for them, but maybe don’t tell them which are the best lambs to rear, or they might start chasing ewes away in first cross or maternal twinning paddock.

Key Points

  • There are a lot of lambs reared on bottles, but it’s a costly exercise coming at around $40 for milk.
  • Further high quality feed is required to get lambs to saleable weights, but there is a small profit in it before labour.
  • Obviously rearing ewes is a more profitable exercise, but mismothered lambs can’t always be chosen.

Next stop $10?

Posted on by Caitlin Dearden

A little bit of precipitation seemed to go a long way this week. Lamb prices jumped for all east coast categories, with the restocker lamb surprisingly doing the most. Meanwhile, heavy lambs smashed through another milestone, next stop $10.

There was some rain about in northern NSW, but it was in Victoria where restocker prices ramped up significantly. Figure 1 shows the National Restocker Indicator gaining 25% this week to hit a new record of 877¢/kg cwt.

In Victoria, the restocker lamb Indicator gained 33% to break through the 900¢ level and hit 938¢/kg cwt. For a 35kg lwt lamb, this equates to $146/hd with a $5 skin. It was only the start of July when we were getting excited about receiving $146 for 20kg lambs.

Restockers buying these expensive lambs will be okay if they are still getting $200 for 22kg cwt lambs, but looking at the forecast rainfall map (released yesterday), one might be inclined to take the great money for store lambs.

The best chart we have seen this week is Figure 3, with the symmetry of the declining lamb slaughter and rising sheep slaughter. Lamb slaughter was at its lowest full week level for five years and sheep slaughter at its highest level since 2014.

Despite the strong slaughter, mutton values rallied this week. The east coast mutton indicator gained 27¢ to 470¢/kg cwt. Processors aren’t making money on lambs, and while they might not be making money on sheep, they are losing less. Hence the extra demand for sheep.

What does it mean/next week?:

Is the next stop $10?  Well, it’s not impossible as the supply of heavy lambs isn’t going to ramp up any time soon.  At this time of year, it’s hard to see a grower with lambs at 45-50kg lwt worth $200 having the courage to hold them for another six weeks to get them to $300 lambs.

It will be the sheep markets turn to rally next, if and when it does rain there will be a supply squeeze like we haven’t seen since 2013.

No questions on leadership of the Ovine nation.

Posted on by Caitlin Dearden

While there is plenty of conjecture in Canberra today as to who is leading the country, at least it’s clear in the livestock market. This week the leader remained the same, Heavy Lambs.  In NSW in particular, where buyers paid over 900¢. 

That’s right, NSW Heavy Lambs this week averaged 910¢/kg cwt! With this price being the average, obviously half the Heavy Lambs in NSW made more than this. The National Heavy Lamb Indicator (Figure 1) is an extraordinary 271¢ higher than this time last year. And the price back then was pretty good too.

The good news is that the weakening Aussie dollar continues to take the sting out of price rises in US and export market terms. Figure 2 shows the ESTLI in US¢ just tipping over 600¢. Still not as high as in 2011, and ‘only’ 27% above the same time last year.

All sheep markets managed to gain ground this week. There is a bit of rain on the forecast, and spring is just around the corner in areas that have had rain. Perhaps demand for restocker lambs is on the improve. This week the east coast restocker lamb rallied 37¢ to 696¢/kg cwt.

Mutton prices also had a marginal improvement, gaining 13¢ in the east, to 443¢. In the west, mutton eased 22¢ to 418¢/kg cwt.

As noted last week, lamb prices in the west are well behind their east coast counterparts. Heavy lambs were up 50¢ and making 726¢/kg cwt. Not 900¢, but a very good price nonetheless.

What does it mean/next week?:

The forecast rainfall won’t see finished lamb supply increase in the short term. If it’s not followed up, it won’t see finished lamb supply increase at all. We are still at least 8 weeks away from sucker lambs from wetter areas hitting the market, so it’s hard to see lamb prices falling far in the short term. The forecast rain and some follow up, would make interesting times for mutton markets. It’s hard to see where the slaughter sheep would come from.