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Wednesday, November 18, 2015

Looks like we seen the bottom for mutton too

By Angus Brown  |  Source: MLA's NLRS

Key points

  • Mutton seasonality is similar to lamb, but usually more volatile and rallies later in the autumn.
  • Mutton values in 2015 have been steady relative to historical levels, but followed the usual trend.
  • The recent rally in mutton values has been early, and further gains may have to wait until autumn.

2015-11-18 Mutton Seasonality FIG 1

2015-11-18 Mutton Seasonality FIG 2

2015-11-18 Mutton Seasonality FIG 3

Last week’s look at lamb market seasonality arrive at the conclusion that, if we haven’t seen the bottom of the market, it’s not far away. This week we look at the mutton market, which has a slightly different seasonal trend and varies more across the states.

Figure 1 shows mutton markets have shown plenty of volatility in recent times, with heavy falls in October followed in the last fortnight by strong rallies in all states. 

Despite what looks like rampant volatility on the price chart, figure 2 shows that mutton markets (illustrated by the NSW price) in 2015 have been stable relative to historical movements.  Figure 2 shows the change in price of the NSW Mutton Indicator relative to the value in the first week of January. This shows that NSW Mutton markets did gain ground in the autumn, but failed to rally in line with historical movements. 

Mutton markets did fall in October, bottoming at a 20% discount to the early January price, which is well within historical ranges.  The recent rally of 50¢ in NSW seems relatively strong and is unusual for this time of year. That said, prices are still at a weaker level than the 10-year seasonality trend would suggest.

Mutton price seasonality is relatively consistent across the states, even in WA, where the market also hits a low late October and early November.  The main difference is that, while NSW markets gain an average of 8% from the November low to the December high, in Victoria, SA and WA, the rally is more like 10-20%. 

Interestingly, mutton price rallies stall in January and February, before starting a five-month upward trend as supply tightens leading into winter.

While prices are generally steady from December through to March, there is little historical precedence for prices to fall. The range of fall is relatively narrow, with a fall of 5-10% being the limit of the downside from January to March (figure 2).

What does this mean?

Figure 3 poses an interesting conundrum. It shows the National Mutton indicator since July, and the forecast price based purely on the 10-year seasonality.  The bottom (light green) line assumes the recent price rally is the ‘normal’ trend but has come early.  Alternatively, you could say that the price fall was overdone, and the normal seasonality will take hold from here (top dark green line). This would shift the forecast 30¢ higher.

Either way, upside for mutton markets appears relatively limited until February. Having said that, though, there is always the potential for volatility in mutton markets.

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