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Tuesday, May 03, 2016

Is lamb supply there and will rain hold it back

By Angus Brown  |  Source: MLA

Key points

  • Lamb slaughter continues to run at levels around last year, heading for a new record.
  • Recent rain is likely to see some retention of lambs which could have been slaughtered.
  • Lamb prices should rise over the coming month, and retain strength through winter.

2016-05-03 Are The Lambs Still Out There Fig 1

2016-05-03 Are The Lambs Still Out There Fig 2


Lamb supply has kicked in the last month with dry weather forcing numbers onto the market. With recent rain across Victoria and NSW we take a look at how many lambs might be left, and whether they will come forth in the coming months, or whether we are in for a sharp fall.

As regular readers would know, the dry conditions in NSW have seen very strong lamb yardings and subsequently strong slaughter levels in April.  MLA’s weekly slaughter figures have been 1% lower than last April on the east coast, which remains at very strong levels despite the small fall.  Continued strong slaughter is further eating into, so to speak, the finite supply of old season lambs.

MLA did lift their forecast for lamb slaughter in 2016 to 22 million head on the back of higher than expected slaughter for 2016 to date.  When we extrapolate that out it puts 2015-16 financial year slaughter at about 22.5 million head, a 1.6% fall on 2014-15.

Figure 1 shows how even if total lamb slaughter is similar to last year, May and June lamb supply will still have to be around 10% below the same months last year.  It seems we are well and truly heading towards a new record lamb slaughter number for the financial year.

What about the rain?  Will it see supply tighten?  The answer is hard to judge as it depends on how many lambs are out there, and how many can potentially be retained, ie females and merino wethers.  Last year an early May break did see lamb slaughter pull back, but it was still stronger than the five year average. 

Price did react last year, the Eastern States Trade Lamb Indicator (ESTLI) gained 60¢ between mid-April and the end of May (figure 2).  On average the ESTLI tracks sideways from April to June, but we still haven’t seen a solid rise from November values, so it’s likely it’s still coming.

What does this mean?

Every time we write an article on lamb slaughter, the number of lambs available seem to multiplying.  The coming month represents the last chance for lamb prices to have a serious rise.  If the ESTLI continues to track in the 500-540¢ range it doesn’t bode well for values in the spring when supply picks up. 

There is every chance however, that supply could contract dramatically.  In 2008 lamb supply fell 19% between May and June, and prices gapped higher, gaining 27% in a month (figure 2).  That gives the optimistic a target lamb price of 660¢/kg cwt.

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