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Tuesday, October 08, 2013

Merino Lambs cheap, according to price rankings

By Angus Brown  |  Source: MLA's NLRS, ACU

Key points

  • Decile or percentile tables can be used to give a snapshot of where prices sit relative to historical levels.
  • Decile tables give a good guide to relatively ‘cheap’ and ‘expensive’ livestock.
  • When making trading or marketing decisions, decile tables should be used as a guide.
  • Further analysis and budgeting should be carried out on identified stock categories.

2013-10-08 Decile Analysis - Buy Merino Lambs FIG 1

There are a myriad of ways to determine whether sheep or lambs are ‘cheap’ or ‘expensive’. Today, we take a wool market favourite, decile tables, and apply it to sheep and lamb markets. What can we take from this? Merino lambs are cheap.

Decile (or percentile) tables are another way of looking at prices, along with the usual ‘this week, last week, last year’ and charts.  Decile tables show how long a price indicator has spent above or below certain levels.  It gives a brief snapshot of whether a market has more upside or downside, and how large this may be.

Figure 2 shows the decile rankings of the Eastern States Trade Lamb Indicator (ESTLI) over 3 and 6 years, and some NSW lamb and sheep indicators over 6 years.

At the end of last week, the ESTLI sat at 421¢/kg cwt, and was ranked at 41% over the past six years.  This means that the ESTLI has been lower 41% of the last 6 years, and higher 59% of the time.  Over the last 3 years, the ESTLI has been higher, which means the current rank is much lower, at just 21%.

For NSW indicators, the restocker lamb, trade lamb and mutton indicators are all at a similar, or slightly higher level than the ESTLI, but interestingly very close to each other, between 44 and 46%.  The odd indicator out, so to speak, is the NSW merino lamb indicator (NSWML).  At 316¢/kg cwt, NSW merino lambs are at the 29% level.  If we are looking to buy sheep, this is where we focus.

Figure 1 shows the NSWML indicator price over the last 6 years and the 20, 50 and 80th percentile levels and gives another perspective on where prices are currently.  From this analysis we’d suggest merino lambs are good buying at the moment, with limited downside and plenty of upside.  Upside may not be to the 100% level, but you might have a target of selling above 60%, which should be achievable over the coming year.

Deciles can be used in this fashion to make marketing decisions.  If, for example, a sheep producer needs to sell some stock, they might have crossbred restocker lambs, merino lambs or cast for age sheep.  A quick look at the decile table tells us that the restocker lambs or cast for age sheep (mutton) should be sold, and the merino lambs held as there is more upside.  

What does this mean?

Decile tables are a good tool to obtain a snapshot of the market.  However, further analysis should be done before trading or marketing decisions are made. 

Decile tables like this don’t take seasonality into account.  However, they do give a good guide to ‘cheap’ and ‘expensive’ classes of livestock relative to other classes.

Tables based on seasons can easily be created.  These would rank prices vs historical levels for this time of year.

Based on the information we see here today, some further analysis should be done into buying merino lambs, as there is plenty of upside in both wool and lamb markets.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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