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Thursday, July 02, 2015

When west meets east for livestock prices

By Augusto Semmelroth  |  Source: MLA's NLRS

After spending more than a year above their eastern states counterparts, WA cattle markets have seen those large premiums shrink as NSW and Victorian markets finally catch up. On the flipside, higher eastern prices seem to have boosted WA markets in recent weeks to see heavy and feeder yearlings break new records last week. Lamb and mutton markets continue to underperform the east.

Key points:

  • For over a year, WA cattle prices seemed like completely unrealistic target levels for the east, where record supplies capped markets much below their intrinsic demand values.
  • That said, the WA market has always been seen as a potential benchmark for eastern markets should seasonal conditions improve and turnoff contract.
  • That’s exactly what has occurred over the last three months, with Victorian and NSW cattle prices surging 30-40% to finally reach WA levels in recent weeks.
  • As eastern prices draw closer, WA markets managed to post gains, albeit modest, in recent weeks. Last week, Heavy and Feeder Yearlings reached new highs last week at 297¢ and 310¢/kg lwt, respectively.
  • Cow markets, on the other hand, have not managed to climb back to the highs seen earlier this year. That’s mainly caused by the fact that 90CL prices are now lower and strong cow turnoff in the east continues to put a lid on export prices and the ability for processors to bid higher for cows.
  • WA sheep and lamb markets have struggled to follow their eastern counterparts in the last two months.
  • Below average rainfall in late autumn and early winter has seen lamb turnoff remain strong and lamb condition deteriorate in recent weeks, causing prices to tumble since the start of the month.
  • As a result, the Western Australian Trade Lamb indicator (WATLI) moved to its largest discount to the Eastern States Trade Lamb Indicator (ESTLI) in more than a year, at 102¢/kg cwt.
  • Percentile levels also show WA markets underperforming the east by a fair margin. While NSW and Victorian lamb markets are tracking at their 98-99th percentile levels, WA lamb indicators are ranging between the 68th (light lambs) and 89th percentile (heavy lambs).
  • We expect lamb turnoff to contract in the following weeks, particularly if seasonal conditions improve. That will most likely see prices rebounding towards eastern levels.    

Read more about how to interpret percentiles

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