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Monday, September 05, 2016

A wet year means tight supply and heavy lambs, or does it

By Angus Brown  |  Source: NLRS, ABS

Key points

  • A wet winter and spring is expected to see lambs held to heavier weights for later sale.
  • The wet winter and spring of 2010 didn’t see this impact, but very tight supply in early 2011.
  • Grower expectations will drive supply, and the market, with spring supply giving an early indication of what is to come.

2016-09-05 Lamb Fig 1

2016-09-05 Lamb Fig 2

2016-09-05 Lamb Fig 3

The rain in NSW and parts of Victoria this week has all but locked in a bumper spring for grass growth across much of Eastern Australia’s sheep growing areas. With plenty of grass comes decisions for lamb producers. Should they sell their lambs at trade weights or use the extra grass to grow lambs out. As usual, history is our best guide to how lamb weights and prices might track this year.

The theory goes that lamb producers with 20kg cwt sucker lambs, and plenty of grass, are likely to wean the lambs and grow them out to export weights.  Sounds fair enough, but when will the heavier lambs show up?  Will they be sold later in the spring than usual, or will they be held over until the New Year?

In 2010 the winter and spring was wet, and the impact on lamb supply was not really as we would expect.  Lamb supply followed its usual trend, of rising in the spring and peaking in November (figure 1).  The most interesting impact was the very weak supply the first half of 2011, as the good spring and subsequent summer rainfall saw producers hold onto lambs for flock rebuilding.

Lamb carcase weights were low in the spring of 2010, and the lambs that were supplied in early 2011 were higher than in 2010, and much closer to the five year average carcase weight, despite being in short in numbers.

The impact of the wet spring in 2010 on price was marked.  Figure 3 shows that while prices fell in spring, it was not by much.  The Eastern States Trade Lamb Indicator (ESTLI) then went on to record a record rally, and record prices in the autumn on the back of tight supply.  The flock rebuild certainly tightened supply enough to ensure heavier carcase weights had little impact on price.

The trends of 2011 and 2012 might also have some lessons for this year.  In 2011 a reasonable spring, cheap grain and the expectation of new season price rises saw many lambs held through the back end of 2011, supporting prices.  In early 2012 we saw the impact of the lambs which were held, with more, and heavier lambs hitting the market, seeing prices ease rather than rise.

What does this mean?

While looking back at 2010 and 2011 doesn’t really give any clearer idea of how supply might react this year, it does give some pointers to what to look for.  If we see supply follow the normal trend in spring, peaking in November and subsequently pushing prices lower, we can expect supply to tighten in the New Year.  A good wet season in northern NSW will exacerbate supply tightening, and add price support.

If supply is weaker, and weights lighter, than last year in the spring prices will track sideways, or just slightly lower, it’s a good indication that lambs are being held to heavier weights.  This suggests that prices are unlikely to appreciate in the New Year.

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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