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Tuesday, September 24, 2013

Understanding lamb seasonality directs budgeting and selling decisions

By Angus Brown  |  Source: MLA's NLRS

Key points

  • Lamb prices show strong seasonality, with lows in spring and highs in autumn.
  • Knowing the impact of lamb price seasonality can assist in forecasting prices.
  • Price seasonality estimates can be regularly updated based on the current season.
  • This can assist in making marketing decisions. 

2013-09-24 Understanding Lamb Seasonality FIG 1

2013-09-24 Understanding Lamb Seasonality FIG 2

At Mecardo we often talk about the seasonality of lamb and sheep prices in our weekly comments. However, we’ve had a request to take a closer look, so here we look at how lamb prices generally trend throughout the year, and how we might use this information.

Lamb prices have a relatively reliable seasonal pattern.  Figure 1 shows the five year average change in the Eastern States Trade Lamb Indicator (ESTLI) from the first week in July.  Unsurprisingly, the low point for the ESTLI over the course of the year is late October and November, with the ESTLI falling 16% on average from the price in the first week of July. On the flipside, prices don’t get much higher than the 1 July point, except in autumn, when they are, on average 4%, higher than in the previous July.

Figure 1 also shows the ‘best case’, or the most prices have risen (or least they have fallen) from 1 July.  It’s interesting to note that the ‘best case’ for lamb producers between July and November is a 3-4% fall.  This tells us that prices are far more likely, and almost certain, to fall between July and November, while they are unlikely to fall more than 25%.

Using this level of information is relatively straightforward. At the start of July this year the ESTLI was 490¢/kg cwt.  The average fall will put the ESTLI at 416¢, with the worst case at 367¢, and the best case at 466¢.

The further you get from the initial pricing point, the wider the variation in price.  With that in mind, the expected price for March 2014, based on this analysis, is 510¢, but the range varies from 440-597¢.

The beauty of this sort of analysis is that it can be continuously updated to take in the current price.  Figure 2 shows the forecast ESTLI based on the current seasonality.  As of last week, the ESTLI had not fallen as far as the five year average would suggest, having lost 5.5% as opposed to 8%.  As such the forecasts are slightly higher than ones based on the July price. 

What does this mean?

At a very basic level, lamb producers can use price seasonality information to budget for lamb sales over the coming year.  For lambs to be turned off in the coming months, a price of around 425¢ can be used ($85 for a 20kg lamb plus skin), while lambs to be turned off in the new year can use 500¢ ($100 for a 20kg lamb plus skin).  Worst case and best case scenarios can also be plugged in to give an idea of the possible outcomes. 

Many lamb producers know how seasonality works, but generally do it in their heads. Having access to this sort of information puts some solid numbers around price forecasts.  Furthermore, it can also be done for many different types of lambs and locations to bring it closer to what is actually being produced.

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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