By Andrew Woods | Source: ABS, MLA, ICS
It is a great time to be in livestock with a trifecta of high beef, sheep meat and merino wool prices. With various records for sheep meat prices falling it is timely to look at the relationship between lamb and beef prices.
With the prospects for higher sheep meat prices on the back of seasonally low supply it is timely to look at the effect of supply and competing red meats on lamb price. Figure 1 expresses a NSW trade lamb price series as a premium and discount to a NSW trade steer (both saleyard and dressed weight) price from 1989 onwards.
Lamb has ranged from a low discount of 60% to premiums around 70% (this data is weekly) during the past 28 years. The dark days of the early 1990s were driven by a whole sale sell down of the Australian flock after the collapse of the Reserve Price Scheme. Overlaid on the graph is the annual calendar year basis for the lamb to beef price. By 2009 the pendulum had swung the other way with trade lamb trading up to 70% above the trade steer price, and staying at high premiums for an extended period. Currently the trade lamb price is trading around parity with the trade steer price, at high price levels but well below the peak premiums of 2009-2013.
Figure 2 looks at the relationship between the ratio of sheep meat to beef production in Australia and the trade lamb to trade setter price, annually from 1991 onwards. The data point for early 2017 is highlighted. Figure 2 shows a strong relationship between the relative supply of sheep meat and lamb price to the bigger beef market. As a rule, a fall in the supply of sheep meat will result in the price relative to beef rising. On a week to week basis the trade lamb premium has been limited to around 70%, while on an annual basis the premium has been limited to around 40%.
The Mecardo deciles show current beef prices to be around double the median of the past decade or so. Figure 2 shows the trade lamb price to be closely linked to the trade steer price when supply is accounted for. The price basis for 2017 is about right in relation to the supply volumes measured so far. This implies the trade lamb price is not out of position in terms of the bigger beef market.
Like the wool and grains markets, the meat markets are a series of interlinked markets. As the supply of sheep meat rises and falls in relation to beef (which itself fluctuates) the price of lamb (and mutton) relative to beef varies. For 2017 so far the price of trade lamb relative to trade steer (around parity) looks about right in light of the relative supply of sheep meat and beef. High beef prices are helping support high sheep meat prices.
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