By Angus Brown | Source: MLA, Trade
Earlier this week the first forward contract prices for lambs and mutton for the April to July period were released. While there were few surprises on the pricing front, it’s worth taking a look at the values, and how they compare to historical price movements, and where prices were last year.
Thomas Foods International has plants in South Australia and Tamworth, and this week put out extensive forwarding pricing grids in an effort to secure supply for autumn and winter for both locations.
The forward contracts are available from April to the end of July, with prices for cross bred and merino lambs, and mutton. The contract values are 10¢ higher for delivery to Tamworth for lambs, but are the same for mutton.
Figure 1 shows the Eastern States Trade Lamb Indicator (ESTLI), along with the forward contract prices for Tamworth. Remember, Lobethal is 10¢ lower. Forward prices for cross bred lambs have been pitched at the lower end of the range of 2017 saleyard prices.
There is some incentive for growers, with price starting in April at a small premium to current values, and increasing by 10¢ per month thereafter. Figure 1 shows that the average price rise from March is stronger than that predicted by the forward prices.
For Merino lambs the contracts are largely priced at stronger levels than 2017 saleyard prices at Tamworth (figure 2). However, they are 20¢ lower at Lobethal from May, which puts them at similar pricing to last year. In terms of trends, the merino lamb contracts are priced at a better premium to current levels, but don’t match the average rise we normally see into June.
While the lamb contracts look ok relative to last year, the mutton contracts look decidedly cheap. Figure 3 shows forward contracts tracking 60-100¢ lower than the same time in 2017. It should be noted that the price shown on figure 3 are for Merino Ewes. Merino wethers are 20¢ stronger, and crossbred ewes 20¢ lower. Still, the forward contracts only really offer current values, plus a bit more in the winter.
If feed is cheap, ie grass, the forward lamb contracts offer good value for those looking to buy, or hold store lambs for sale later in the autumn or in winter. If feeding a full ration, some careful calculations need to be done to assess whether it might be better to sell now.
For sheep the forward contracts look a little cheap given usual seasonal trends of tightening supply, and improving prices thought the autumn. There is a risk of a failed autumn break in southern NSW, Victoria and South Australia, which would make current prices look attractive, so a bit depends on your views on the weather.
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