By Andrew Woods, ICS | Source: MLA's NLRS
Seasonal price patterns are useful as guides to price levels within seasons. They can be over ridden by stronger cycles, one of which stems from the effects of major drought. This article looks at the seasonal price pattern of mutton during the past decade, the pattern during major eastern Australian droughts and the current season.
Figure 1 shows the seasonal price pattern for a NSW mutton price series for the past decade, with the May price set to zero. Prices tend to rise mid-year and then decline through the spring, reaching a low in October before stabilising. The price then tends to pick up during the autumn. The price effect is substantial, pushing values around by +/-20%.
What about the effect of a major eastern Australian drought? The years used to examine this were 1994, 2002 and 2006. Figure 2 overlays the drought price pattern onto the seasonal pattern shown in figure 1. As seasonal conditions deteriorate during a major drought, the mutton price continues to fall.
Major droughts tend to supercharge the spring fall in price, following a similar timing to the standard seasonal price pattern but with a median fall in value around 50% compared to around 20% during the past decade. A difference in major droughts is that after hitting a low in October and November, prices then tend to bounce back strongly, into the early part of the new calendar year.
So where does the current market sit among these in-season historical patterns?
Figure 3 overlays the price pattern for the current year in NSW and Victoria onto figure 1. This shows the NSW mutton price is following the median seasonal price pattern of the past decade quite closely, while the Victorian price is starting to come under extra pressure from the drier conditions in the south.
The good seasonal conditions in NSW (to September) have helped to offset the poor conditions in the southern regions. The seasonal pattern suggests that mutton prices will remain weak into November and then stabilise.
Seasonal price patterns are only one tool to help provide some bearings on whether prices are acting normally or are “out of position”. Price movements this year for mutton prices in NSW are in line with the median pattern of the past decade, so they are normal and should find a base in the coming month. Victorian mutton prices have been following the same pattern but have weakened in the past month, reflecting drier conditions. Both seasonal and drought patterns indicate the Victorian mutton price should stabilise also in the coming month.
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