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Tuesday, February 21, 2017

It's a record for lamb prices

By Angus Brown  |  Source: MLA

Key points

  • Trade lamb prices hit a new record in nominal terms last week, while mutton values are still 40¢ below the record.
  • Restocker lamb prices are 4% above the previous record in ¢/kg terms but behind in $/hd due to lighter lambs making up the indicator.
  • There is further upside for mutton prices, while restocker lambs might be due for some downside.

2017-02-21 LAMB FIG 1

2017-02-21 LAMB FIG 2

2017-02-21 LAMB FIG 3

Last week’s extraordinary rally in lamb prices saw the Eastern States Trade Lamb Indicator (ESTLI) hit a new record in nominal terms. With such hot prices in the trade lamb space, it’s a good time to take a look at other sheep and lamb categories, and how far they are from a similar record price.

Figure 1 shows the ESTLI just tipped last the previous record last week.  Almost in the exactly the same week in 2011 the ESTLI reached 663¢/kg cwt, a mark beaten by 3¢ last week, with a 50¢ rise putting the ESTLI at 665¢/kg cwt.

It’s very interesting to note the ESTLI has now set its last two price records at a time of year when prices are usually on the rise, but not at the traditional seasonal peak.  We all know that lamb prices usually peak in winter. 

The extraordinary summer levels seen in 2011 and now 2017 have both been driven by exceptional spring conditions, which saw a lot of lamb finish early, and more lambs being held to build the flock.   In both instances processors, and the trade in general, have been caught by surprise by the very tight lamb supply.

Despite very tight sheep supply and record lamb prices, the National Mutton Indicator (NMI) hasn’t yet managed to surpass the record set a little later in the year in 2011 (figure 2).  The NMI currently sits at 432¢/kg cwt, 40¢ short of the 472¢ set on the 23rd of March 2011.

Like the ESTLI, the National Merino Lamb Indicator has just reached a record, eclipsing the 2011 high by 3¢, to sit at 587¢/kg cwt.

One category that is well and truly at record highs are restocker lambs.  The restocker lamb indicator is at 746¢/kg cwt, 26¢ above the previous record (figure 3).  However, in dollar per head terms the national restocker indicator is at just $106/head, $13 dollars below the record. 

Restocker lambs are lighter this time, with the average weight in March 2011 being 16kgs cwt, while last week it was 14.4kgs.  

What does this mean?

Looking at these three indicators there appears to be some further upside possible for mutton values, while restocker lambs might find it hard to move higher, without further rallies in finished lamb prices.  There is probably less downside risk for mutton, as illustrated by the 2011 trend, where lambs fell and mutton went sideways.

It’s hard to know what to make of the fact restocker lambs are much lighter during this boom.  It may simply mean that processors are buying more light lambs, due to a dearth of finished lambs, which makes the restocker portion lighter.  If this is the case it’s good news for prices, as it means there will be less trade and heavy lambs to sell over the coming months.

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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