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Wednesday, July 06, 2016

Is it time for WA trade lamb to shine?

By Matt Dalgleish  |  Source: MLA, NLRS, ACA

Key points

  • The surge in ESTLI to 644¢ last week has seen the spread discount to WATLI widen to 27.5%.
  • Seasonal percentage price gain patterns and tightening supply for WA lamb suggests that there is room for trade lamb prices in the west to gain ground in the coming month.
  • Even if the ESTLI has reached a peak for the season there could still be room for WATLI to test toward 525-545¢/kg cwt as the discount spread narrows back towards 10-15%.

2016-07-05 WA LAMB FIG 1

2016-07-05 WA LAMB FIG 2

2016-07-05 WA LAMB FIG 3

2016-07-05 WA LAMB FIG 4

Despite some good rainfall to sheep country and lower than average saleyard yarding levels WA trade lamb prices have failed to replicate the gains seen recently on the east coast. Seasonal spread patterns suggest the discount between the Easter States Trade Lamb Indicator (ESTLI) and the Western Australian Trade Lamb Indicator (WATLI) is likely to narrow, but how much could WA prices play catch-up?

Figure 1 highlights the price pattern between the ESTLI and the WATLI clearly showing the widening in the spread discount as WA trade lamb prices have increased 10.4% to 506¢, while the east coast trade lamb price has surged 28% to 649¢/kg cwt over the last three months. The ESTLI has already come off the highs this week to see it close at 631¢/kg yesterday.

The lacklustre performance of WA trade lamb outlined in figure 2 which demonstrates the percentage price gain pattern since the start of 2016, up a meagre 2.6%. In contrast the ESTLI has gained 24.8% since January.  The normal season percentage price gain pattern for WA trade lamb shows an increase from May to August which coincides with reduced lamb yarding levels during this timeframe – figure 3. Recent lamb yarding figures from WA indicate that supply is beginning to tighten and this should continue to track lower reaching a trough mid-late September, which should be supportive of prices into the coming month.

Figure 4 demonstrates the seasonal pattern in WATLI weekly percentage spread to the ESTLI which shows that as at closing prices last week the spread was at a 27.5% discount (orange dash). Historically, for this time of year the spread is usually much narrower, within the 5% discount region, as shown by the grey dotted line. Indeed, the usual range in this series can vary from a 15% premium to a 35% discount depending on the time of year and the long term average spread since 2000 has been an 8.1% discount. This suggests the spread is likely to narrow over the coming weeks back towards a 10-15% discount of the WATLI to the ESTLI. According to the ESTLI closing prices of 631¢ yesterday the current discount spread is at a 24.9%, based off the WATLI closing price from last week of 506¢/kg. 

What does this mean?

There are a number of combinations of price movements that could see the WATLI to ESTLI spread narrow into the coming month. Recent ESTLI price movement indicates that east coast trade lamb prices have topped out and the supply pattern in WA shows prices here could still probe higher or hold steady as the ESTLI tests lower. Seasonal price movements for WA trade lamb suggest that a move towards 525-545¢/kg isn’t out of the question even if the ESTLI has peaked for the year and drifts lower from here.

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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