By Augusto Semmelroth | Source: MLA's NLRS, ABS
Total monthly sheep slaughter has been tracking well above year-ago levels since March 2012. While this trend is likely to have ended in April, the latest official slaughter statistics for March continued to show sheep turn-off around 20% higher year-on-year at 963,200 head. With a solid autumn break and expected tightening of supplies, what to expect for prices?
Figure 1 shows the eastern states sheep slaughter from ABS up until March and an estimate for April. Between January and March this year, monthly sheep slaughter has tracked around 20-25% above the corresponding period in 2013. When compared to 2012 and the 5-year average, sheep turn-off has been around 90-125% and 45-50% higher during the period, respectively.
On a similar note, figure 2 shows the sheep slaughter stats from ABS for WA. As with the east coast, sheep slaughter rates in the west were also around 20-25% above year-ago levels between January and March. In comparison to 2012 and the 5-year average, numbers have been around 130-200% and 30-45% higher, respectively.
Despite the ongoing strong sheep turn-off since January, mutton markets have posted a very solid recovery since the beginning of the year. From the lows of late January, the Victorian mutton indicator has rallied 217¢, or 117%, to reach 403¢/kg cwt last week. In NSW, mutton prices eased in the last two weeks but are still around 190¢, or 120%, higher than they were in late January, now at 348¢/kg cwt.
As opposed to the east coast, mutton markets in WA have tracked sideways from February until April, with prices ranging between 220¢ and 250¢/kg cwt during the period. After some solid rainfall over the last couple of weeks, WA prices have rebounded 40¢ to reach 293¢/kg cwt. Yet, they remain reasonably discounted in comparison to eastern states markets.
Going forward, mutton slaughter will inevitably follow its seasonal pattern and decrease in the coming months. In addition, the supply tightening is likely to occur more intensively this year as farmers shift from destocking to a flock rebuilding phase.
While this prospective supply scenario suggests mutton markets should have some solid upside in the short-term, mutton has become comparatively expensive in relation to other livestock, particularly cattle. As of last Friday, the Victorian mutton indicator was quoted at a relatively small discount of 28% to the Eastern States Trade Lamb Indicator (ESTLI) but at a 19% premium to the Eastern Young Cattle Indicator (EYCI).
Despite the ongoing large numbers of sheep being slaughtered this year, numbers are finally starting to decline and they should fall considerably in the coming months. Most producers have already liquidated enough stock to match feed supply and will start focusing on rebuilding the flock should seasonal conditions allow.
This is very positive news for mutton markets, which are already faring quite well this year. In the east coast, downside seems very limited while in WA, prices should continue to recover towards the levels seen in the eastern states.
The main caveat going forward is the price relationship between mutton, lambs and cattle. For now, mutton markets are already testing those relationships and will increasingly become more dependent on the performance of other livestock markets to move the next leg higher.
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