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Wednesday, December 11, 2013

The wait is drawing to an end – ESTLI price outlook

By Augusto Semmelroth  |  Source: ABS, MLA, ACU

Key points

  • Aussie lamb slaughter hit an all-time record of 2.07 million head in October.
  • MLA’s slaughter data suggests steady November numbers, reinforcing our prospects of tighter 2014 supply and higher prices.
  • ESTLI should range between 475-535¢/kg cwt in March and 490-550¢/kg cwt in June. 

2013-12-10 The Wait Is Drawing To An End FIG 1

2013-12-10 The Wait Is Drawing To An End FIG 2

2013-12-10 The Wait Is Drawing To An End FIG 3

The Eastern States Lamb indicator (ESTLI) has fared very well this spring despite ongoing high supply levels. While 400¢/kg cwt has proved to be a solid support level for trade lambs this season, the expected price recovery is yet to be seen. How much longer will we have wait to see sizeable gains in lamb markets?

At first glance, it seems any significant recovery is unlikely to happen before the Christmas break. After that, upside is pretty certain. According to ABS latest release, national lamb slaughter rates were close to 15% higher month-on-month in October at 2,072,200 head. This is 14.5% above year-ago levels and an all-time monthly record.

For the month of November, the unofficial  MLA National Livestock Reporting Service (MLA’s NLRS) weekly slaughter statistics show lamb killings steady from October levels but still close to 4% higher year-on-year on the east coast. Using MLA’s data as a proxy for calculating the national lamb turn-off in November, we estimate that another two million head were killed nationally during the month.

Collating ABS’ official data from January until October and our estimates (based on MLA’s data) for November, year-to-date lamb slaughter is likely to have surpassed 20 million head already. That’s close to 10% higher than the corresponding period in 2012, and 11.5% above the 5-year average.

Lamb turn-off will start tightening in December, as it usually does, but numbers are still unlikely to fall below 1.5 million head. As such, total slaughter for 2013 should be somewhere around the 21.5 million mark and around 7% above MLA’s mid-year forecasts of 20.15 million head.

With that in mind, lamb supply will likely drop substantially in the rest of the 2013/14 season. Using ABSs estimates for a 19.5 million lamb crop for 2013/14 and recent slaughter rates, lamb slaughter is likely to fall to 8.5-9 million head in the first six months of 2014. If realised, this will put early 2014 numbers 15-20% lower year-on-year, and 12% below the 5-year average for the January-June period.

Putting those numbers into perspective, lamb supply in the first half of 2014 is likely to sit very close to the corresponding period in 2011. That year, the ESTLI averaged 597¢/kg cwt between January and June, peaking at 663¢/kg cwt in March. 

What does this mean?

The topic of ‘tightening 2014 supplies and higher lamb prices’ has been a recurring theme in the last few months on Mecardo. However, every time ABS releases its slaughter numbers, it reinforces our prospective healthy price scenario.

While prices are unlikely to reach the highs of 2011, the recovery should be in the order of 15-25% by March and possibly 20-35% by June, depending how autumn conditions unfold. This would see the ESTLI quoted in a range between 475-535¢/kg cwt in March and 490-550¢/kg cwt in June.

The only uncertainty with our price forecast is related to the real size of the 2013/14 lamb crop. That said, lamb numbers should not deviate substantially from current expectations. In other words, the aforementioned results are very plausible for 2014.

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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