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Tuesday, November 21, 2017

Record price for November mutton.

By Angus Brown  |  Source: MLA, ACA

Key points

  • Mutton values have had a very strong November rally, the NMI has gained 25% from the October low.
  • Victoria and NSW mutton values are very strong, with SA and WA lagging significantly.
  • Mutton is not expensive relative to lamb, and may be able to maintain strength.

2017-11-21 Sheep Fig 1

2017-11-21 Sheep Fig 2

2017-11-21 Sheep Fig 3

With all the talk about exceptionally strong spring lamb prices, for both trade and store lambs, mutton values have been left in the background. Unlike lamb, which has been relatively steady at highs, mutton has actually gained ground, in a performance which is probably more remarkable than lamb.

Figure 1 shows that up until the second week of October the National Mutton Indicator (NMI) was following the five year average trend nicely. We can see that mutton usually has two lows, in late October, and then again at the end of December. 

This year the October low came a little early, and the November rally has been much strong than normal.  Since the price low of 350¢/kg cwt set on the 13th of October the NMI has rallied 25% to sit at 439¢/kg cwt.  In fact the NMI is at an all-time high for November, outstripping last year’s record by 13%.

Not all markets have benefitted from the rise in mutton values however. Victoria and NSW are holding up the NMI, with state mutton indicators at 470 and 447¢/kg cwt respectively (figure 2).  South Australia and Western Australian mutton indicators are lagging behind, likely due to the absence of the strong restocking demand seen on the east coast. SA last week sat at 324¢, while WA was at 353¢/kg cwt. 

If we work on a dollar per head basis, a 25kg cwt freshly shorn sheep is worth $81/head in SA, and over the border in Victoria the same sheep is worth $117.50/head. This gap should close as the freight cost is nowhere near the difference. The question is whether it closes through Victoria falling or SA rising.

Interestingly, mutton prices are not really expensive relative to lambs. Strong lamb values mean that even with the 25% improvement in mutton values the NMI still sits at a 39% discount (figure 3) to the Eastern States Trade Lamb Indicator (ESTLI). The five year average mutton discount is 41%, so just last week mutton moved into what could be called the expensive range relative to lamb.

What does this mean?

The fact that mutton is not expensive relative to lamb suggests that it may be able to maintain some of its strength in the face of falling prime lamb prices. When restocking demand is strong, mutton values can move to a 20-30% discount to the ESTLI, which means the ESTLI can fall to 550¢ without necessarily having a large negative impact on sheep values.

The upside potential for mutton in the short term doesn’t look huge. Seasonality tells us the market usually rallies post-Christmas, but it would be a punt to hold onto sheep which are ready to sell, especially if you are in the high priced Victoria.  

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