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Thursday, July 30, 2015

Lamb supply poised to remain below 2014 levels in the short-term

By Augusto Semmelroth  |  Source: MLA

Key points

  • Lamb markets so far have bucked the late winter price downtrend as slaughter levels continue to track below year-ago levels.
  • Supply of new season lambs is yet to gather more momentum, but will finally see numbers flowing more intensively from August onwards.
  • Under average seasonal conditions, we expect lamb supply to continue to move below 2014 levels to see a milder price downtrend in spring.

2015-07-30 New Season Lamb Supply FIG 1

2015-07-30 New Season Lamb Supply FIG 2

2015-07-30 New Season Lamb Supply FIG 3

Eastern states lamb markets start their seasonal downturn in mid to late-July as a result of increasing new lamb supplies. Last year, the price downtrend occurred abruptly as lamb turnoff was brought forward on the back of deteriorating seasonal conditions. Lamb throughput has remained below year-ago levels since May. So what is to be expected in the coming months?

After spending the first four months of the year at record high, eastern states lamb slaughter rates have steadily declined over the last three months. Since May, weekly slaughter levels have tracked 6% below 2014 levels to give ongoing support to the market (figure 1).

Despite the surge in slaughter rates seen last week, numbers remain weak compared to 2014 despite the resumption of processing in most SA abattoirs. Anecdotally, this also suggests the appearance of new season (young) lambs has been delayed compared to 2014 on the back of a late autumn break and slower lamb growth rates.

Unfortunately, the slaughter data collated by Meat and Livestock Australia (MLA) does not distinguish old vs new season lambs, making it harder to assess if supply of young lambs is indeed weaker than in 2014. That said, the yardings data collected by MLA does make that differentiation, which helps us to perform some analysis and evaluate trends.

Figure 2 shows the weekly eastern states new season lamb yardings. The chart effectively demonstrates the escalation in young lamb supply from August onwards and highlights the strong spring turnoff seen last year. For most part of the second half of 2014, new season lamb saleyard throughput tracked 15-60% above 2013 and 2012 levels, as a result of worsening seasonal conditions.

Looking at this supply pattern from a different angle, figure 3 shows the cumulative yardings between July and December. By November last year, over 1.9 million new season lambs had already been sold via saleyards, while in 2012 and 2013 the total tally was around 1.5 million head.

So far this year, new season lamb yardings seem to be tracking in line with 2014 and, therefore, above 2012 and 2013 levels. However, it’s still too early to say lambs turnoff has been brought forward this year, or assume we will follow a similar pattern to 2014. But one thing is certain; lamb turnoff will start to gather stronger momentum in the weeks ahead, which will likely place some downward pressure on prices. 

What does this mean?

Assessing trends in new season lamb saleyard throughput helps us to foresee when the market is tipped to turn, or at least, allows us to check if supply is running ahead or below normal levels. The only caveat with the yardings data, though, is that it fails to paint the full picture about supply, particularly with the recent shift toward direct sales to processors in recent years.

So far, lamb markets have managed to buck their usual late-winter downtrend supported by weaker slaughter levels (seen in figure 1). Going forward, rainfall will be pivotal in dictating the pace of supply, and whether turn off will eventually track as strongly as in 2014.

On that note, the BOM just released its three-month rainfall outlook for the August-October period. Despite the El Nino threat, the outlook seems neutral to slightly positive for rainfall. Should rainfall turn out to be around average going forward, we expect lambs will be carried to heavier weights while also encouraging ewe lamb retention for flock rebuild purposes. These trends would likely see a mild spring price downturn and the market bottoming above year ago levels. 

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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