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Wednesday, March 05, 2014

SA trade lambs to catch up with the east – monthly percentiles

By Augusto Semmelroth  |  Source: MLA's NLRS, ACU

Key points

  • Heavy lambs continue to fare better than other lamb categories in SA, in both absolute and percentile terms.
  • SA trade lambs at a large discount to the ESTLI and lower percentile levels. Upside very likely.
  • Cattle prices in SA at a sizeable discount to Victoria and NSW. Low percentile levels reinforce poor state of SA markets. 

Lamb prices in South Australia have recovered strongly since the beginning of the year. While still well below the record high levels of March 2011, most finished lamb categories are now around their 80-95th percentile levels. Cattle prices, on the other hand, remain at the bottom 5-20% of the 10-year price range.

SA lamb markets have rallied around 20% over the last five weeks to reach one of the highest levels since 2011. At 529¢/kg cwt, heavy lambs continue to lead the way with a 36¢ premium to trade lambs. This puts them at their 95th percentile level and depicts the strong export demand for heavier carcases.

Light, trade and merino lambs are also well priced, but are at lower percentile levels. After a surge in restocker lamb prices in the second week of February, prices eased 70¢ in the two weeks to last Friday to reach 468¢/kg cwt (73rd percentile). Mutton prices have recovered 30% over the last five weeks but are still lagging behind lambs in percentile terms at 64th.

South Australian cattle markets continue to track below their eastern states counterparts in both absolute and percentile terms. While trade steers are faring a bit better, cows and feeder steer prices remain very depressed by historical standards.

What are percentiles?

Percentiles (sometimes called deciles) provide one way of estimating what may happen in the future by looking at what has happened in the past. A percentile is a measure of how often, historically, prices have fallen above or below a particular price level. However, it is important to note that percentiles are not a definitive measure of absolute price ranges.  They are just one tool in your market information toolbox, and should be considered in conjunction with the other information you use.    Read more about how to interpret percentiles

What does this mean?

While heavy lamb prices and percentile levels are somewhat in line with the ones seen on the east coast, the SA trade lamb indicator looks relatively cheap at the moment.

On average, the SA trade lamb trades at a 10¢ discount to the Eastern States Trade Lamb Indicator (ESTLI). Last week that discount was 45¢, one of the largest discounts on record. This means, trade lambs are likely to catch up with eastern states prices at some stage.  

Cattle prices in SA should move closer to NSW and Victoria in percentile terms, which are now around the 30th level. This would see trade steers moving 6% higher, while cows and feeders could see a potential upside in the order of 13% and 17%, respectively.

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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