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Thursday, January 16, 2014

Sheep and lamb percentiles point towards upside

By Angus Brown  |  Source: MLA's NLRS, ACU

Key points

  • Percentile tables give a good snapshot of where sheep and lamb prices are sitting relative to historical levels.
  • East coast lambs price percentiles currently low, meaning that the outlook is skewed to the upside.
  • Percentiles in WA higher than on the east coast, therefore less upside.
  • Percentile analysis adds further weight to the anticipated ESTLI price rise.

2014-01-15 Sheep And Lamb Percentiles Point Towards Upside FIG 3

Percentile tables are an interesting tool to gain a snapshot of how different livestock categories are performing relative to historical prices. Sheep and lamb percentiles are indicating that stock of the ovine variety remain historically cheap, on the east coast at least, and this add further weight to the bullish story we’ve discussed previously.

Figure 1 is a percentile table for NSW sheep and lamb indicators (as a proxy for east coast indicators) over the past six years.  The cheapest lambs at the moment in NSW relative to historical levels are trade lambs, which, at the 25th percentile have been more expensive for 75% of the last 6 years, and cheaper only 25% of the time.  Interestingly, Merino lambs are at the 45th percentile, so priced reasonably well, which probably indicates they are in tighter supply than trade lambs; the same goes for heavy lambs.

Restocker lambs in NSW remain relatively cheap, but this is a factor of cheap trade lambs, as most buyers work their prices relative to the finished article price.

Figure 2 shows that, in WA, not only are lamb prices higher than on the east coast, but they are also at higher percentiles.  Heavy and trade lambs are at normal supply levels relative to each other, while mutton and restocker lambs look relatively cheap, at the 37th and 48th percentile, respectively.

What are percentiles?

A percentile is a measure of how often, historically, prices have fallen above or below a particular price level. It gives a brief snapshot of whether a market has more upside or downside, and how large this may be. 

Read more about what percentiles are and how they are used.

What does this mean?

This percentile analysis tells us that lambs have plenty of upside on the east coast and, when combined with fundamental analysis, the market looks quite bullish.  In the west, price upside is more limited, which makes sense as prices have already had a solid rise from spring lows.

From a trading perspective, there is merit in buying restocker lambs or older sheep on the east coast or in WA as both have plenty of upside, and more than merino lambs.  

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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