Brought to you by AG Concepts

Wednesday, November 02, 2016

Paying through the nose but there’s a bit in it

By Angus Brown  |  Source: NLRS, Auctionsplus

Key points

  • Store lamb prices remain very strong, losing around $5/head from the peak despite easing finished lamb values.
  • Forward contracts released this week would have a reasonable gross profit being made of buying store lambs.
  • If lambs need to be grainfed there is marginal profit in growing out lambs, which means buyers are putting low values on green feed.

2016-11-2 Lamb Fig 1

2016-11-2 Lamb Fig 2

2016-11-2 Lamb Fig 3

Store lamb values are still running hot, despite the prices of finished lambs having eased over the last month. There are also some forward contracts floating about so we can take a look at how realistic current store prices are, in terms of making money out of buying and finishing lambs.

Restockers are continuing to raise eyebrows with the prices being paid for store lambs, despite falling finished lamb prices.  On Auctionsplus last week store and sucker composite and first cross lambs between 30 and 40kgs were sold for $100 to $117/head, which equates to 260-290¢/kg lwt. 

Figure 1 shows that restocker lambs in Victorian and NSW saleyards continue to average around the $100/head mark, with better lambs selling up to $120/head.  Prices in saleyards have eased marginally from the peak of a month ago, but in reality current store lamb values are only $5/hd or 30¢/kg cwt below the highs.

The store market is holding its value, as a fall in finished lamb prices was always expected.  In reality, finished lamb prices haven’t actually fallen as far as many thought they might to the start of November, which may be adding some confidence.

There are also some forward contract for early next year now available, which means we can calculated a margin on lambs bought now with some certainty, assuming lambs hit weight targets of course.  It is usually easier to predict the weight of a lamb in 8 weeks’ time than the price.

Forward contracts released this week have crossbred lambs in the 20-32kg cwt range priced at 540¢ in the last two weeks of December and first week of January, 530¢ for the last 3 weeks of January and 520¢ in February.  These forward contract values are shown relative to the last years ESTLI, the five year average and current prices in figure 2.

Figure 3 shows how buying lambs in the current market, and selling on forward contracts for late December, January or February might play out.  To keep it simple we have assumed the same 55kg weight across all months, which accounts for lambs with different growth rates.

What does this mean?

The gross margins on growing out lambs look reasonable, but it should be remembered there are no shearing, treatment, labour or selling costs included here.  All of these costs would cut margins considerably, but growers would still be getting some value for their green feed, with plenty of upside in putting more weight on lambs.

If lambs need to be grainfed, margins become very thin, and negative after variable costs, as despite very low grain prices, the strong store prices mean there is unlikely to much of a margin in feeding lambs this years, unless prices are stronger than those currently on offer.

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. 

x

Sign up for a FREE BASIC SUBSCRIPTION now to read this article.

Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published.  You will also receive one month Premium access for free.

You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.

Learn more about Mecardo Sign Up Now!