By Angus Brown | Source: MLA, NLRS, Ag Concepts
There are new records in lamb and mutton markets. It has been a stellar rise in the ovine markets as tight supply borne out of improving seasonal conditions has seen processors, and restockers, scrambling for available stock. Despite hitting a record, mutton is still ‘cheap’ relative to lamb, but does this mean there is more upside?
It has been a big couple of weeks for lamb markets, and an extraordinary couple of weeks for mutton. The Eastern States Trade Lamb Indicator (ESTLI) has gained 70¢, or 11.5% in a month to sit at 681¢/kg cwt (figure 1). Last week’s close saw the ESTLI eclipse the previous record, set in February this year, by 16¢. Before that, the only time the ESTLI had been above 650¢ was for a week in February 2011.
Figure 1 also shows the rise in mutton markets has outstripped lamb, and its previous record. The National Mutton Indicator has gained 78¢, or 19% over the last month, hitting a new record of 490¢/kg cwt last week. The previous record mutton price, also set in February 2011, was 472¢, last week’s price outdoing it by 18¢.
The stronger rally in mutton prices has seen the discount to lamb narrow, but not by as much as could be expected. Last week the National Mutton Indicator sat at a 191¢ discount to the ESTLI (figure 1). Mutton bottomed out at a 233¢ discount, and has made up 42¢ since. However, back in December, when the ESTLI hit its low, mutton sat just 135¢ off the ESTLI, as sheep supply didn’t match lamb at the time.
The question now is whether mutton can continue to close the gap on lamb prices, and in the process break through 500¢. A return to the discount of 135¢ would put mutton at 545¢/kg cwt, a number which look unlikely.
Over the last five years, the times when the mutton discount to lamb have been the smallest were when lamb has fallen sharply, while mutton has held on at stronger prices.
The good news from this analysis is, that despite the rapid rise in mutton prices, there is still room for lamb prices to fall without impacting mutton too much. We have seen a number of times over the last five years when lamb prices have fallen as supply has come to market, while mutton values have held on as supply remains tight.
This is not to say lamb is going to come off current record highs in a hurry, but there is a reasonable chance there could be a bit of a post Easter/Anzac Day flush, as we often see in May, which could cause prices to ease somewhat. The prospects for increased mutton supply are more limited.
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