By Angus Brown | Source: MLA, Ag Concepts
Regular readers will be well aware of the record prices lambs have been achieving of late. Lamb prices haven’t been this strong since 2011, the last time we reached record highs. With tight supply driving the market higher, one would be excused for thinking export demand might start to weaken. The lower AUD this year is providing some relief on that front.
When prices reach record highs there is always concern there is going to be a consumer backlash, which in this case would result in lower lamb consumption. The fear is that lower lamb consumption will become the norm. When lamb supply returns to normal, demand will have taken a hit, resulting in lower prices than would be expected at that level of supply.
We did, in fact, see this to an extent back in 2011, with prices falling over the following years as supply reached record levels. There are a couple of reasons we don’t expect to see a repeat of weaker demand in this cycle.
On the export front we have seen higher prices before. With the Aussie dollar sitting around the mid 70US¢ range, as opposed to the parity levels of 2011 and 2013, lamb should actually still be cheaper than the same time in these two years.
Figure 1 shows that the Eastern States Trade Lamb Indicator (ESTLI) when converted to US¢/kg remains at levels 22% below 2011 levels, and 10.5% below 2014. Despite the current tight supply, lamb prices in US terms are just 7% stronger than the five year average.
On a domestic front, lambs are not anywhere near as expensive as they have been in the past, relative to their major competitor. Beef prices are currently around parity with lambs, with the Eastern Young Cattle Indicator (EYCI), and the ESTLI almost moving in sync this year.
Back in 2011 lamb prices were at a 50-60% premium to young cattle, while in 2014 the premium got to an extraordinary 86%. As such, on the domestic front lamb is not going to lose market share at retail level, it might have even gained some ground over the last year, adding to current prices strength.
On a retail level, there shouldn’t be too much concern surrounding demand implications stemming from current high lamb prices. There may be some issues if processor capacity is lost, which could see a bottleneck impact on prices, but that is unlikely to last long.
While lamb prices will fall as supply improves over the coming years, they shouldn’t fall any further than increases in supply suggest they should. If lamb prices do move below the demand curve, it will be a good indication that it’s time to hold.
Want to see more ?
Go to Sheep data
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.
Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published. You will also receive one month Premium access for free.
You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.Learn more about Mecardo Sign Up Now!