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Tuesday, November 08, 2016

Lamb: Anecdotes and evidence lining up

By Angus Brown  |  Source: MLA

Key points

  • Lamb slaughter hasn’t reached last year’s peak yet, but it could still peak in late November.
  • Lamb supply has never peaked in December, but it could remain strong, depressing prices through to the New Year.
  • Strong lamb slaughter over the coming 6 weeks is positive for those holding lambs through to January or later.

2016-11-08 LAMB FIG 1

2016-11-08 LAMB FIG 2

2016-11-08 LAMB FIG 3

Anecdotal evidence, while being unreliable, will give a range of views as to what could possibly happen with lamb supply and price. In the last week we have heard that there is a flood of lambs which are going to hit the market later than usual. We have also heard that trade lamb prices will be 590¢ by Christmas. And this was from the same buyer!

The only antidote to anecdotal musings, and saleyard heresy, are hard numbers and historical trends.  Fortunately we do have some relatively reliable data to work off.

Lamb supplies are finally flowing, with east coast lamb slaughter last week hitting a seven month high.  Yet lamb slaughter levels are have still been tracking well behind last year, except for last week’s restricted supply due to cup week in Victoria.  Interestingly, we are now past the traditional peak supply as indicated by the five year average.  The question is whether we have seen peak supply or whether it has been pushed back by the wet spring.

Part of the reason for the perception that there is still a flood of lambs to come, is because it happens every year in Victoria.  Figure 1 shows that while lamb yardings are tracking about 3 weeks behind last year, it is this week that we see the jump in supplies on average.  No doubt there is a flood of lambs to hit Victorian saleyards.

In terms of lamb slaughter however, it is week 44 which historically marks the peak of supply.  It was week 45 last week, and while strong slaughter is expected to run later this year, it is the level of the peak we are interested in, as it will dictate the low in price.

We keep harking back to the bumper spring of 2010 to get an idea of how supply and price might pan out.  Figure 2 shows that in 2010 the lamb slaughter peak was pushed back, but only by two weeks.  More interestingly was the fall in supply from the peak in 2010, as lamb slaughter dropped 15% through November and December.  Lambs didn’t actually come to the market until autumn 2011, which is when prices finally fell.

We should remember that the last two months of 2010 were extremely wet, and the BOM are not expecting a repeat at this stage.  In 2012 lamb slaughter did peak in late November, and only eased marginally in December.  Weak late spring rainfall was the primary driver of this.  

What does this mean?

Figure 3 shows the possible price trends from here, in the form of historical series.  The 2012/13 price line appears to be the one we are following, with a heavy price decline likely (as evidenced on Monday’s ESTLI) over the coming weeks, before a recovery. 

It might seem counter-intuitive, but those who intend to hold lambs through to the New Year want to see price fall heavily at this time of year.  A heavy price fall, indicates that lambs are coming to market, and being slaughtered, and thereby being removed from the system, never to return. 

While the 2012 series looks a bit depressing for price, a recovery back to early November levels in January will still put the ESTLI at 550¢/kg cwt, and prices have rarely been higher early in the year.  While the anecdotal evidence regarding a flood of lambs might be right, we are not going to see 590¢ by Christmas.

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