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Thursday, April 19, 2018

Dry flooding Victoria – with lambs.

By Angus Brown  |  Source: MLA, Mecardo

Key points

  • Victoria slaughtered a record number of lambs last week, with supply driven by dry weather.
  • Slaughter trends are following 2016 closely, which suggests tighter supply in coming months.
  • There is significant upside in prices if and when there is a widespread rain.

2018-04-19 Sheep Fig 2-1

2018-04-19 Sheep Fig 2-2

2018-04-19 Sheep Fig 2-3

Despite its smaller area, Victoria definitely punches above its weight in terms of lamb slaughter. This year it is killing an even larger proportion of lambs, and last week set a new record. There has been some rain in parts of the state, but it’s not supporting prices this week.

Last week lamb processors in Victoria killed 224,550 head of lambs. Lamb slaughter in Victoria was up 5% on the last full week of lamb slaughter, before Easter, and at a new record high (figure 1). The new record was 3% higher than the previous high, set in December 2014. Back then, the price was 460¢/kg cwt, which doesn’t make the current price decline seem so bad.

Largely due to the Thomas Foods fire, Victoria is killing more than its usual share of lambs. Last year Victoria slaughtered 51% of east coast lambs. The ten year average proportion is 48%. For the year to date Victoria has killed 55% of east coast lambs, and last week it was 57.5%.

Victoria doesn’t just slaughter its own lambs, with many coming from South East South Australia and Southern NSW.  Almost all of the Victorian lamb drawing zone, including Victoria itself, has had well below average rainfall for the first quarter of 2018.

The dry weather, and the very strong Victorian slaughter has pushed East Coast slaughter to well above last year’s levels. Figure 2 shows that while slaughter wasn’t quite at the peak levels of March, it is following the trend of 2016 very closely. 

There has at least been some rain in key lamb areas over the last week. Around 17% of the Victorian, South Australian, and NSW flock had over 20mm of rain, which if followed up in the next couple of weeks, will constitute an autumn break.

We can see in figure 3 what the dry and heavy slaughter levels has done to lamb prices since the start of the New Year. The downtrend has taken a hefty shift lower in the last week or so, in part due to strong supply, and partly due to poorer quality, again thanks to the dry weather.

What does this mean?

As we often say, the more lambs that are slaughtered now, the fewer there will be for later. The 2015-16 price trend offers some hope for those still holding lambs, or those going to have early new season lambs. Once the autumn break arrived  in 2016 prices rallied strongly, gaining 25%. 

With the prices having already fallen around that far since the start of the year, there is a good chance that tightening supply will see a solid rally in price.

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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