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Thursday, November 21, 2013

Relating ESTLI forecasts to your lamb prices

By Angus Brown  |  Source: MLA's NLRS

Key points

  • Local price forecasts can be derived using ESTLI forecasts and historical spread information.
  • Lamb prices generally move together, but the further away from the ESTLI the lamb is, the wider the range in the spread.
  • MLA data can be used to analyse price spreads to the ESTLI at the state, regional or saleyard level.

 

2013-11-19 Relating Lamb Prices To The ESTLI FIG 1

2013-11-19 Relating Lamb Prices To The ESTLI FIG 2

2013-11-19 Relating Lamb Prices To The ESTLI FIG 3

Regular readers will know that we base most of our lamb price forecasts on the Eastern States Trade Lamb Indicator (ESTLI), but we have recently had requests for more localised price forecasts. Obviously, producing price forecasts for every lamb saleyard in Australia is impractical, but we can give readers the tools to relate our ESTLI forecasts to a local price for them.

We can see from the saleyard data collected by the NLRS (figure 1) that trade lamb prices on the east coast move together fairly consistently at most times of the year. Even in WA, trade lamb prices generally stay within a certain range of the ESTLI. 

In Victoria, the spread of the trade lamb indicator to the ESTLI largely ranges from -20 to +20¢ with little seasonal variation. 

In NSW the spread has more seasonality (figure 2). The main variation is at this time of year when the NSW trade lamb indicator averages 15¢ above the ESTLI, largely because of supply shifting to Victoria and South Australia.  The NSW trade lamb indicator generally falls back to parity with the ESTLI in May, with a historic range (1 standard deviation) of -20¢ to +10¢. 

Using this information is relatively easy.  If the ESTLI is forecast to be 520¢/kg cwt in May, on average the NSW Trade Lamb Indicator is expected to be 520¢. Furthermore, it is unlikely to be below 500¢ or above 530¢/kg cwt.

While all lamb prices tend to move together, the further you get away from the trade lamb in terms of product, the wider the range of the spread to the ESTLI. 

Figure 3 shows the SA heavy lamb indicator spread to the EYCI. Its seasonal variation is wider than for NSW trade lamb, as is the range of the variation.  If we look back at our example of a 520¢ ESTLI forecast in March, then the SA heavy lamb will sit at 500¢ on average. Furthermore, it is highly likely to sit between 480¢ and 520¢/kg cwt depending on lamb supply in SA at that time, and heavy lamb supply in general.

The size of the spread is not the main concern; what is more important is how consistent this spread is at certain times of the year.  The more consistent the spread (ie the smaller the range), the more confidence you can have about determining your expected price based on an ESTLI forecast.

What does this mean?

Historical data for lamb and sheep prices are available down to the saleyard level. As such, growers who would like to know how a particular east/west coast or state level forecast relates to them can analyse price data from their own saleyard, or state over the hooks prices. 

In general, we find that all lamb prices move with the ESTLI. However, analysing spreads of different locations and categories can give a good indication as to whether a particular lamb or sheep category is overpriced or underpriced relative to the ‘market’, which helps identify trading opportunities. 

Mecardo regularly looks at spreads between sheep and lamb categories, and trading opportunities, and we take requests. So if you think your particular query will be relevant to the wider audience, by all means send it in.

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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