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Tuesday, August 01, 2017

Glimmer of hope in restocker spreads for NSW and Victoria

By Matt Dalgleish  |  Source: MLA, NLRS, ACA

Key points

  • NSW and Victorian restocker lamb spreads to the ESTLI have improved recently to sit at a premium of 15% and 11%, respectively.
  • The period from April to mid-July had seen the NSW restocker lamb spread narrow from a 20% premium to a 10% discount, impacted by the drier than normal conditions.
  • Relatively kinder weather conditions in Victoria, compared to NSW, has seen the restocker spread here spend much of the season at above normal levels - ranging between a 10-20% premium.

2017-08-01 SEEP FIG 1

2017-08-01 SEEP FIG 2

2017-08-01 SEEP FIG 3

Increased rainfall over the last fortnight looks to have provided a bit of a boost to restocker lamb spreads to the Eastern States Trade Lamb Indicator (ESTLI) in NSW and Victoria. However, all other categories of sheep and lamb spreads across the nation are sitting within the expected range for this time of the season.

Figure 1 highlights the current percentage spreads compared to the ESTLI for a variety of categories of sheep and lamb all over the country, as of last week’s closing prices. Overlaid on the chart is the normal range in spreads for each category for this time of the year, according to the historic price database, which highlights where the spread has ranged for 70% of the time. Clearly, the only two categories that outperformed were NSW and Victorian restocker lambs, sitting above the normal range with premium spreads to the EYCI of 15% and 11%, respectively.

A closer look at the spread pattern throughout the season for NSW restocker lambs shows a fairly steady decline in the spread to the ESTLI as the very dry start to Winter in much of NSW began to take its toll on the condition of the pasture and restocker optimism/purchasing at the saleyard. Indeed, during the April to July period the spread for NSW restocker lambs to the ESTLI narrowed significantly from a 20% premium to a 10% discount – figure 2. Although, Bureau of Meteorology (BOM) rainfall deciles for the month of July indicate that NSW isn’t out of the woods yet with much of the state still experiencing below average to very much below average conditions. However, recent falls of 25-50 mm in some areas have been most welcome.

In contrast, Victorian restocker lambs have been travelling reasonably steadily above the normal range for much of the season, as weather conditions have been a little kinder to Western district lamb producer’s pastures compared to NSW, despite the drier than normal start to Winter here too. As figure 3 demonstrates, apart from a recent dip below 10% premium spread during July, much of the Victorian restocker lamb spread pattern has been ranging between a 10-20% premium for much of the season - returning to an 11% premium as some much-needed rainfall settled over the state over the last fortnight.

What does this mean?

The recently released BOM three-month rainfall outlook points to a continuation of the dry Winter throughout August, in particular across much of NSW with the chance of rainfall exceeding median levels below 25% for much of the state. Although, moving into September the situation looks a bit more promising with expectations 40-50% chance of rainfall exceeding the median levels for much of the nation.

This rainfall forecast suggests that the recent improvement to NSW restocker spread to the ESTLI may come under pressure during August, but begin to recover again into Spring. Given the anticipated rainfall distribution Victorian restocker spread is likely to continue to consolidate within the 10-20% premium range we have seen for much of the season thus far.

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