By Angus Brown | Source: NLRS, ACA
Spring lamb prices are the talk of the market at the moment. Not only are trade and heavy lamb values holding above 600¢ in the face of increasing supply, but store lamb prices are going gangbusters, with some lighter lambs making upwards of 800¢/kg cwt. The question for those buying these lambs is whether the market is going to rise, and the gamble payoff.
I hear most readers say ‘800¢, horse droppings’, but a quick perusal of online and store lamb sale results shows plenty of second cross lambs weighing 27-31kgs liveweight selling for $110/head. If we deduct $5 for the skin, and divide by 30kgs this gives us 350¢/kg lwt. Little lambs generally don’t dress very well, but even at 43% we get 810¢/kg cwt.
Heavier lambs are not quite as expensive on a ¢/kg rate, with 36-40kg lambs making $120-130 per head. Running the same calculation gives 315¢/kg lwt, or 732¢/kg cwt. It’s still very good money.
This time last year we did some similar analysis and decided that store lambs were good selling, and risky buying. As it turned out the buyers did very well out of store lamb which were then being bought for 280-320¢/kg lwt depending on weight.
History tells us the after Christmas trade lamb prices rallied over 100¢/kg cwt. Lambs bought at 30-40kgs for $95-115/head were sold in January and February at 45-55kgs for $123-150, returning better than 20% before feed costs. If feed is excess grass or fodder crop, the trade made excellent sense.
Livestock markets tend to not look too far back for price trends, and this is evident in the current market. It appears a little like buyers are simply looking at the profits made last year, and expecting to see a similar price rise and similar profit.
Is it possible? The simple answer is yes, with the best argument we can make being the Eastern States Trade Lamb Indicator trend of 2010-11 in US dollar terms. The July to November price trend was eerily similar to current, with no real price fall in the spring. What comes next is the exciting part, with the ESTLI reaching 650¢/kg cwt in US terms. The point is that the export market has seen much strong prices in the past.
Here is the wishful thinking scenario for lamb producers. If the market rallies in US terms in a similar fashion to late 2010 and early 2011, lamb prices are headed for the stratosphere. Figure 2 shows where the ESTLI would sit in our terms if it is priced at the same levels as 2010-11 in US terms. The difference is the much lower Australian dollar, which then was above parity, but is now around 77¢.
Are we headed to 850¢/kg cwt? We don’t think so. There is the real possibility of lamb prices at 700¢ if supply tightens significantly, but we won’t get much of an idea around supply until the results of the AWI/MLA October survey are released. Until then, those buying expensive stores can hope for a figure 2 type scenario and two years of very good profits.
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