Tag: Sheep

Meat and Livestock Australia (MLA) slaughter figures
confirmed that January lamb supply has been tighter
than usual. The result has been very strong summer
lamb prices, at a time when the market has tracked
sideways in recent years.

Figure 1 shows east coast lamb slaughter for the week
ending the 20^th of January was well below last year.
The 18% reduction in numbers seems to have been due
to the good spring, which saw many lambs finish early
and hit the market in December, leaving a dearth of
numbers in January.

The result has been the best January lamb prices since
2011, with the Eastern States Trade Lamb Indicator
(ESTLI) managing to spend its third week above 600¢.

The ESTLI did ease slightly this week, but only 2¢ to
finish at 602¢/kg cwt. Mutton values took more of a hit,
losing 12¢ to hit 395¢/kg cwt as supply improved.

The question now for lamb markets is whether they can
maintain the strong levels. The five year average would
suggest they can, but figure 2 shows that in the last two
years February has seen the ESTLI ease. Lower prices in
February are likely due to domestic demand waning after
Australia Day and supply improving as shorn lambs start
to come back to the market.

As always the price trend will depend on how many lambs
are actually out there, and as indicated by survey results,
it could be fewer this year, so lamb prices could find some
solid support in the 560-580¢/kg cwt range.

The Week Ahead

We expect prices to ease over the coming weeks, but not
by much. Lamb producers not likely to be forced to sell in
the short terms, so may hold out for stronger prices if we
see any correction.

Mutton values should recover from this week’s correction,
it’s hard to see more supply coming forward given the feed
situation and the wool price.

The Eastern States Trade Lamb Indicator (ESTLI)
held onto the strong gains since the start of the
year remaining above 600¢/kg cwt this week
in the face of solid lamb throughput figures,
particularly from NSW, and a resurgent A$ –
boosted by a Trump impacted weaker US$.

Figure 1 shows the east coast lamb yarding
figures for this week opening the year at
229,495 head, some 21.6% above the yarding
figures for this time last season and 34.7%
higher than the five-year average. Overall east
coast lamb yardings given a boost from NSW
throughput, which came in 26.4% above figures
recorded for this week in 2016 and 58.9% higher
than the five-year average for this time of year.

After a stronger start to the season slaughter figures
have returned to levels consistent with the 2016
pattern – figure 2. East coast lamb slaughter for the
week ending 13^th January reported at 382,865 head,
a mere 2.3% below the slaughter figures for the same
week in 2016 and 8.9% above the five-year average
for this time in the season.

The ESTLI closing yesterday at 609¢/kg cwt, a
10¢ gain on last week. Not as impressive as the
previous week’s rally but a gain nevertheless.
Combined with an A$ 5% higher than where is
finished 2016 this places the ESTLI in US$
terms the highest it has been since September
2016 – figure 3. Despite the recent A$ strength
the currency currently trading at 75.5US¢ is still
below the two-decade average of 76.25US¢.

The Week Ahead

The A$ recovery over the last month has been on
the back of broad US$ weakness with financial
market nervousness setting in as we draw closer
to a President Trump inauguration. Expect regular
currency volatility as the new leader settles in and
his unpredictable style of communication via Twitter
running of the country continues to unnerve the
market. Any significant impact on export demand
for Australian sheep and lamb product unlikely
unless a prolonged period of US$ weakness pushes
the A$ above 85-90US¢.

It’s been an extraordinary week in lamb markets. Lamb markets have
reached high which are usually seen in winter in the second week of
January, a time when supplies are usually good. When prices rise it’s
due to falling supply or rising demand, we suspect it’s a combination,
helped by the ‘Kekovich Effect’.

Figure 1 shows that in the second and third week of January in the last
two years, and on average over the last five years, we have seen the
largest slaughter of the first half of the year. Normally heavy slaughter
equates to lower prices.

However, figure 2 shows that despite high slaughter rates, prices in
January have been steady or higher. How do we explain higher supply
and steady or higher price? Call it the ‘Kekovich Effect’, driven by Meat
and Livestock Australia’s (MLA) Australia Day lamb marketing campaign.

Demand for lamb obviously increases before Australia Day, lamb processors need more lambs, and supply is usually compliant in early January.

This year it seems some processors have been caught short. This week’s
Wednesday and Thursday sales gave a taste of what processors are willing to pay, with many lambs selling for well over 600¢, and the Eastern
States Trade Lamb Indicator finishing at 599¢/kg cwt.

Light lambs are doing even better, with restockers paying 661¢, and
light lambs selling for 607¢ on the east coast.

Mutton has also joined the party, with the National Mutton Indicator (figure 3)
rising 32¢ to hit a three month high of 407¢/kg cwt. Mutton demand is not
likely to have increased like lamb, but rising prices suggest small stock
processors can’t find enough lamb, and are turning to mutton.

The Week Ahead

As outlined earlier in the week, the heavy supply of December is
coming home to roost, with few shorn lambs ready, and sucker
lamb supply basically done. The Kekovich Effect has at least a
week to run, which suggests lamb prices might stay strong for
another week or so.

After that, don’t be surprised to see lamb prices ease back, as supply
improves, and demand weakens post the Australia Day demand peak.