Tag: Sheep

A mixed week across the states for ovine markets as price increases for most categories of lamb and sheep in NSW and Victorian saleyards wiped away by losses in SA to see most national categories of lamb close flat.

The Eastern States Trade Lamb Indicator (ESTLI) marginally higher, climbing to 671¢/kg cwt to post a 1.2% rise. National Mutton not as robust, but still a positive result, with a 0.8% lift to 527¢/kg cwt – figure 1. More impressive for mutton the 3.3% increase in National OTH prices to see it probe toward the $5 mark, closing just shy at 490¢/kg. WA Trade lamb mirroring the ESTLI percentage gains to see it up 1.1% to 664¢/kg cwt, while WA mutton recovering strongly to see an 8.6% rise to 453¢.

In Victoria, restocker and trade lambs leading the charge higher with 6.1% ($116 per head) and 2.7% (695¢/kg cwt) improvements on the week, respectively.  Light lambs (up 2.3% to 680¢) and mutton (up 2.5% to 542¢) the two best performers for NSW – other than the cockroaches on Wednesday night. SA lamb and sheep mirroring the dismal cane toad’s effort getting thumped across the board and displaying lacklustre quality. SA light lambs and mutton the worst of the pack, down 11.4% (608¢) and 11% (471¢), respectively. Indeed, SA OTH prices posting a premium to the saleyard prices this week with trade/heavy lambs achieving 660¢ and mutton at 480¢.

East coast lamb throughput retraced 12% this week to see just over 175,000 head reported through the saleyards. The softer offering broadly supportive of prices, although SA lamb numbers were up 18.7% in contrast to the other East coast states – perhaps another reason for the SA price weakness displayed. Despite the softer week on week East coast lamb throughput the trend is still tracking above the five-year average and higher than this time last year – figure 2. This suggest the current solid prices are drawing out a bit of supply but not enough to curb the recent price gains.

The week ahead

A good sign for robust offshore demand noted with live export wethers up 26% on the week to hit $136 per head out of Muchea. Finally, in weather news of a different kind the Bureau of Meteorology released their next instalment of the three-month outlook showing a drier than normal Winter for much of the sheep rearing regions of the country.

Although, given the tight supply this year and the remnants of the favourable seasonal conditions experienced last year a drier Winter period is unlikely to cause too many headwinds for sheep and lamb prices in the coming month.

We still haven’t hit winter, but lamb and sheep prices are doing a good job of maintaining a winter peak.  This week Merino lambs hit a new record, trade lambs continued to rise, and mutton continued to surge upwards.

If ever there was a year to have held onto sheep and lambs, this was it.  We are only in May and Merino lambs have moved further into uncharted territory, the National Merino Lamb Indicator this week hitting 633¢/kg cwt (figure 1).

In Victoria Merino lambs were just 4¢ weaker than the Trade Lamb prices.  On a national level Merino lambs are at a 5% discount to the ESTLI (figure 2).  Merino lambs have been closer to the ESTLI twice in the last eight years, but it is usually fleeting.  Strong wool prices and a restocking push are no doubt seeing good demand for Merino lambs.

Mutton prices hit a new record this week as well.  The National Mutton Indicator reached 523¢, while in Victoria the mutton was at 550¢/kg cwt. Interestingly sheep yardings and slaughter has been stronger than the same time last year, so processors seem to be getting enough.

It looks like restocker demand is pushing mutton prices along, they are 40% stronger than this time last year.  The ESTLI is ‘just’ 16% higher than last year.

Over in the West lamb prices are nearing their eastern states counterparts, the WATLI at 657¢/kg cwt.  WA Mutton is languishing however, sitting at 417¢, which is 133¢ behind the national indicator.

The week ahead

The Bureau of Meteorology (BOM) have been forecasting drier than normal conditions for much of the country for a few months now.  This has been followed by good rainfall on the east coast at least, so many will take figure 3 with a grain of salt.

If we do see drier than normal conditions, it should mean lighter lambs, sold earlier, and weaker prices.  Rainfall could continue to defy the forecasts, but there is some significant downside price risk come late winter.

The talk of the town at the Wycheproof store sheep sale last week centred on the line of first cross ewes making $322/head, and merino ewes reaching $260/head.  While many sheep producers are enjoying a good season, some might be thinking it’s a good time to cash in a portion of the flock, go on holidays and buy back in the spring.  Today we look at how this might play out.

There is plenty of talk about store sheep being expensive, but are they overpriced?  It depends on your definition, but one way to look at it is to look at whether ewes bought now are going to be worth more in six months’ time, or worth less.

We have to put a few assumptions in place to come up with an answer.  We’re assuming ewes will not be shorn between now and November, and the first cross ewes will produce 130% lambs, and Merinos 90%.  All lambs will be terminals.  Lambs will be sold as trade suckers in November, and ewes will be valued as stores.  We use an interest rate of 4%.

Table 1 shows the result of the trade, if lambs and ewes are priced at similar levels to November last year.  If buying first cross ewes now for $300/head the grower receive $147 in lamb value, and have a ewe worth $180 in November.  This gives a net gain of $21.29/head after interest is taken into account.

For Merinos the net result has the buyer of Merino ewes at $250/head running at a loss, with the net result being negative $13.56.  Wool growth is hard to account for, but we have tried to build this into price of the ewe in November.  Those buying Merino scanned in lamb ewes are banking on a good wool cheque to bolster profits on the trade.

Obviously higher lamb prices will make the result look better for the buyer of ewes, while lower prices will make it look worse.  Figure 2 shows a rough estimate of the profit on the trade at different lamb price levels.

Key points:

• Scanned in lamb ewes are making very good money at store sales.
• There appears to be some money in buying first cross ewes, while merinos are marginal.
• It’s hard to see sellers of SIL ewes losing out at current prices, unless the sheep and lamb market maintains very strong values into the spring.

What does this mean?

For those looking to buy or sell scanned in lamb sheep the question is whether the cost of running the sheep through to November is higher than the net result.  For merinos all businesses would incur more than in costs in lambing down and marking lambs.  For the first cross ewes cost or running may not outweigh the profit on the trade so they might be a better purchase.

We haven’t accounted for the possible alternative uses of grass in this analysis, with agistment an option, which could pay a similar return to the first cross ewe.  However, without owning stock, growers have no access to price upside.  Given the current state of the sheep market, we suspect there is more downside than upside, so this might not be a problem.  As such those looking for less work this winter can sell some sheep without too much fear of losing out.

A textbook case of the economics of supply and demand in sheep and lamb markets this week as reduced throughput in most states provides support to prices. The Eastern States Trade Lamb Indicator (ESTLI) up 1.6% to close at 651¢/kg cwt. National Mutton a bit firmer still with a 2.6% gain to 515¢/kg cwt and even WA Trade Lambs getting in on the action with a 6.9% surge to finish the week at 635¢/kg cwt.

All states, except Tasmania, saw a decline in lamb throughput this week evident in the yarding figures for the East coast (Figure 1) and in Western Australia (Figure 2). East coast lamb yarding down 12% to just under 156,000 head reported through the saleyards, while WA lamb throughput saw a decline of 13.8%.

Saleyard price action responding accordingly to the reduced supply with NSW and Victorian restocker lambs up 7.2% ($115 per head) and 8.8% ($122 per head), respectively. Good gains also noted for NSW Trade Lambs, up 4.2% to 651¢, and NSW Heavy Lambs recording an increase of 3.7% to 640¢/kg cwt. Victorian Trade Lambs, still the dearest in the nation (with the exception of Restockers), registering a mere 1¢ decline to 668¢.

East coast Mutton throughput impacted by soft NSW figures where an 11% fall in NSW flowed through to a price gain of 1.6% for sheep in that state and a broader drop in the East coast throughput for the week – figure 3. Not the case in WA and SA, where increased mutton yardings translated into double digit percentage price falls to see both state mutton prices back below 500¢.

The week ahead

A classic example this week of prices responding to supply movements in accordance with the economic theory sets the tone for lamb and sheep markets as we head into the traditionally tighter winter season. A forecast of steady rain for the weekend and early part of next week to much of the sheep producing regions of the country and the prospect of tightening of supply, as the weather cools further, should continue to provide support to lamb and sheep prices.

If you told a sheep grower back in November you’d give them 530¢ for lambs in May, they would have considered it.  If you told them you’d give them that for mutton, they’d have laughed at you.  But here we are, with the Victorian Mutton Indicator at 530¢/kg cwt.

Figure 1 shows how sheep and lamb slaughter jumped in the week ending the 5^th of May, as processors returned to full weeks.  In terms of total sheep and lamb slaughter, it was actually the biggest week since the second week of March.  Obviously the strong slaughter was helped by heavy supply in saleyards, and subsequent lower prices.

Yardings were again strong this week, but were down around 20% on last week.  The lower yardings saw the Eastern States Trade Lamb Indicator (ESTLI) rally marginally this week, closing Thursday at 641¢/kg cwt.

Mutton yardings were also strong relative to last year, but down on last week.  The National Mutton Indicator (NMI) reacted by gaining 22¢ to hit a new record of 503¢/kg cwt.  This is the first time the NMI has broken 500¢ (figure 2).

Can you believe Mutton in Victoria is averaging 530¢/kg cwt.  Mutton made up to 588¢/kg cwt in the saleyards.  No doubt the good autumn break, good lamb prices, and good wool prices have combined to see growers hold sheep. Demand for sheep from restockers is also strong.

Mutton still hasn’t reached a record relative to lamb prices, figure 3 shows it sits at a 27.5% discount.  Back in 2011, when lamb prices were falling, mutton was at just a 14% discount.

The week ahead

It seems unlikely lamb or sheep supply is going to improve in the short term, with the tap to turn on sometime in August.  What happens from there depends on the season, but we can expect to see price decline fairly rapidly once lambs start to hit the market.

After yesterday’s excitement of Star Wars Day (May the fourth be with you) it seems fitting for one last headline pun as we end the week on the 5^th and highlight a classic example of fundamental economics as supply casts its revenge upon prices in lamb markets, particularly in the West.

As pointed out in last week’s commentary, we needed to wait to see what developed with regard to supply post the Easter and ANZAC shortened periods to get a clearer gauge of the market sentiment at the moment. Clearly the rebound in lamb supply experienced this week has placed a bit of a dampener on price activity, but it may not last.

Figure 1 highlights the lift in east coast lamb yardings as saleyards return to normality this week with a near 100% gain in throughput recorded to see just over 205,000 head of lamb change hands. Interestingly, the post Easter recovery in lamb yarding seen this season still over 25,000 head short of the 2016 peak of around 233,000 head, suggesting that the incentive to retain stock is strong despite the high prices on offer.

A different story in the West though with solid prices enough to draw out supply as the pattern of lamb yarding in WA shows so far this season tracking well above the five-year average pattern and the 2016 trend – figure 2. Prices in the West responding in an anticipated to the 78% jump in lamb yardings on the week, fashion according to the laws of economics, with the WA Trade Lamb Indicator (WATLI) down 7.5% to 596¢/kg cwt. The elevated east coast lamb yardings having an impact on the Eastern States Trade Lamb Indicator (ESTLI) too, albeit to a lesser degree than out West, with a slight fall of 1.7% recorded on the week to see it close yesterday at 634¢/kg cwt.

The week ahead

Despite the rebound in supply noted this week, broadly speaking prices remain fairly robust – certainly for lamb and are even more well supported for mutton. The generally lower levels of throughput and slaughter we have experienced for much of the season continue to underline the tight supply being experienced at the moment and the comfort producers are displaying in holding back supply in the face of good historic price levels bodes well for the coming weeks and months ahead.

As the Mecardo lamb forecast pointed out in articles released late in 2016 the stage is set for an ESTLI of at least 750¢ come late-Winter and may even spike towards 780-800¢ if the A$ can continue to soften, supply remains tight and producers can hold their nerve.

It’s hard to know whether the falling lamb slaughter is due to lower supply, or the short weeks taking some production days out.  We’ll hopefully find out next week when we finally get back to full production after three interrupted weeks.

One of the most interesting numbers found this week was MLA’s weekly lamb slaughter for the week ending the 21^st of April.  Lamb slaughter came in at just 293,342 head, the lowest level since July last year.  In the week ending the 21^st Lamb slaughter fell 5%, and also sat 5% below the Easter levels of 2016.

Despite weaker slaughter levels, lamb prices fell last week, and continued to ease this week, the Eastern States Trade Lamb Indicator falling 22¢ and hitting a four week low of 645¢/kg cwt.  It will be interesting to see if the ESTLI can find some support at 650¢/kg cwt.

There are some forward contracts out there pitched at 650¢ for May and 660¢ for June and July.  This suggests lamb supply might remain tight for some time yet, and we should see the ESTLI bounce over the coming weeks.

Not all lamb prices fell this week, Merino lambs gained 19¢ on the east coast, while light lambs were up 12¢.  Neither quite managed to hit record highs, but are not far off at 611¢ and 673¢/kg cwt for Merino and Light lambs respectively.

Mutton values also eased this week, losing 21¢ for the week on the east coast to sit at 482¢/kg cwt.  Mutton still sits 167¢ above the same time last year, which on a 25kg sheep equates to a very handy $42/head.

The week ahead

It’s unusual for lamb or sheep supply to improve at this time of year, with the only time it has happened being in 2011 when prices started to ease in earnest around this time of year. The difference in the seasons is probably what is going to hold prices this time.  In 2011 supply had been low in the previous spring, something we didn’t see this year, and the autumn break was late.  This saw more lambs come to market, which are likely to be held this year.

A rebound in East coast yardings post the Easter break, particularly out of NSW, sees the Eastern States Trade Lamb Indicator (ESTLI) take a breather this week. The ESTLI posting a 2.9% drop to 667¢/kg cwt. Not so for National Mutton, bucking the trend with a 1.9% gain to 495¢ – dragged higher by gains to Western Australian sheep.

Figure 1 shows the lift in East coast lamb throughput, a 49.8% gain from the figures from the previous week to see over 162,000 head reported at the saleyard. The East coast numbers given a huge lift by the 74.3% rise in lamb yardings seen across NSW – figure 2.

Despite the higher supply, restocker lambs in NSW and Victoria gaining some ground up 10.4% and 6.6%, respectively. NSW restockers now fetching $119 per head, while Victorian restockers are enjoying a $126 per head level. The higher NSW yardings having most impact on Heavy and Trade lambs in that state down 4.2% (641¢/kg) and 1.4% (656¢/kg), correspondingly. The two softest categories of Victorian lamb for the week were Merino, falling 5.2% to 616¢, and Light lambs, down 3.5% to 660¢. Trade lambs the star performer in SA, the only category of sheep in that state to post a gain this week, up 4.2% to 614¢.

The week ahead

Another short week ahead with the ANZAC break and some decent rainfall to much of the sheep regions of the nation (figure 3) should see prices hold, or perhaps firm slightly. As outlined in the sheep/lamb analysis piece this week longer term fundamentals will continue to support any price dips seen in sheep and lamb markets for much of the current season.

There is a theory around that the upcoming public holidays and subsequent disruptions to sales and lamb supply has been pushing processors to buy up in markets to secure supply.  However, if Meat and Livestock Australia’s most recent projections are to be believed there might be more upside to come.

The pace of the rally in the Eastern States Trade Lamb Indicator (ESTLI) slowed this week, but it still went up.  The ESTLI finished Wednesday at 687¢/kg cwt (figure 1).  While the stronger prices of the last month might have something to do with a demand spike, it’s more likely to be underlying tight supply supporting values.

Figure 2 shows lamb slaughter still tracking well below non holiday weeks last year.  It seems that there is 20,000-30,000 fewer lambs available each week, and processors are competing hard for these lambs.  It was about this time last year that lamb prices started to rise, and there is some suggestion there might be more upside.

All the news in recent days has been MLA’s sheep projections, with the headline figure being a 6.3% fall in lamb slaughter this year on the 2016 record.  According to MLA’s weekly slaughter numbers, so far in 2017 just 1.5% fewer lambs have been processed.

This simply means that if MLA are to be correct, lambs slaughter needs to become a lot tighter relative to 2016 for the rest of the year.

Driving MLA’s figures were results from the February MLA/AWI survey with the key figures being 34% of producers intending to increase flocks, and 59% intending to maintain.  Of those intending to increase the flock, 56% are going to retain more replacement ewes.  This basically means that of the fewer lambs born in 2016 and 2017, fewer are going to be available for slaughter.

The week ahead

We’ll have more on the survey results and MLA projections in our analysis next week, but the initial reading looks encouraging for lamb prices for the rest of the year.  The result should be interpreted with caution, however, as grower intentions in February are one thing, what they actually do given whatever the season delivers is another altogether.

The short weeks coming up are likely to see a bit of volatility in saleyards, but over the hooks prices are remaining strong which might be a better option for the risk averse.

Key points:

• Australian lamb exports volumes to China are at 49% above the seasonal five-year average and is being shadowed by a decrease in mutton exports
• Growing middle class wealth and increasing in interest for premium products in China is a potential cause for the shift in demand from mutton to lamb
• A narrowing price gap between sheep meats may also be a contributing factor

The release of Department of Agriculture and Water Resources (DAWR) trade data this month shows a continued surge in demand for Australian lamb from Chinese buyers. Indeed, the first quarter trade volumes show a distinct shift in preference for Australian lamb over Australian mutton.

Figure 1 shows the lamb export volumes for 2017 sitting at 49% above the seasonal five year average levels for this quarter. Volumes increased again for March to 4,477 tonnes swt, just shy of the record high in June 2016. This is deviating from the usual March drop that occurs towards the seasonal trough.

The story for sheep exports to China tells a completely different tale in Figure 2. The total volume exported over the first quarter of 2017 was nearly half of that two years ago, begging the question, is China’s appetite for sheep meat changing or are relative price differentials between lamb and sheep encouraging the shift?

To delve a little deeper into the question, in Figure 3 we have lined up the change in mutton and lamb export volumes from 2015 to 2017 for the season so far. Interestingly, we can see that where mutton volume has dropped off very closely aligns with increases in lamb consignments. Particularly in the months of January and March, there is a near exact shift in volumes from the one sheep meat to the other.

Chinese consumers have always had a strong affinity to lamb, however, it’s likely that the demand will only continue to rise with the changing demographic. The growing middle/upper income class and open food culture of the younger population is prompting a shift in taste towards ‘premium’ import meats. Where historically cheap proteins for the hot pot were in high demand, the ‘foodie factor’ is taking over, with consumers in China willing to pay a premium for quality and a sense of superiority on their fork.

What does this mean?

Our current sheep meat export prices may also be playing a part in the changing trade trends within China. Over the last season, the basis of the spread between mutton and lamb has narrowed significantly. In 2015, we had the price of mutton at around 50% of lamb but now we’re seeing the mutton price close in.

The NMI is even fighting against the typical seasonal drop, so far holding steady and still close to record highs of 2011. It could be that the reducing price differential between mutton and lamb is also encouraging the shift in consumption choice towards the premium meat as Chinese consumers are more willing to buy for quality.