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Tuesday, October 18, 2016

Tradies struggling out in the West

By Matt Dalgleish  |  Source: MLA, NLRS, ACA

Key points

  • The discount spread of the WATLI to ESTLI has narrowed from 30% to just under 20% in the last fortnight.
  • The WATLI has been unable to sustain a percentage price gain since the start of 2016 above 5% for the entire season.
  • Normal seasonal price and spread patterns indicate the WATLI is on track to post a late Spring trough of around 400¢/kg cwt. 

2016-10-18 Tradies Fig 1

2016-10-18 Tradies Fig 2

2016-10-18 Tradies Fig 3

It could be a heading commenting on the mining industry decline and the impact this is having upon apprenticeships and trades people within Western Australia but, in fact, it refers to the relatively subdued performance of Trade Lambs out west when compared to the eastern seaboard prices since September.

As an update on two previous Mecardo articles released on the WA Trade Lamb Indicator (WATLI) in July and August forecasting the potential price movements and anticipated variation in percentage spread to the Eastern States Trade Lamb Indicator (ESTLI) this piece provides a recap and review to see how things are tracking.

The July article suggested a possible peak in the WATLI around the 525-545¢ range could be reached as the percentage spread discount between the WATLI and ESTLI was anticipated to narrow from around 25% to a discount within the 10-15% area. Indeed, as displayed in figure 1 the WATLI reached a peak slightly short of this projected range reaching 517¢ in late August before staging a sharp fall to 433¢ two weeks ago.

This price movement coincided with the percentage spread discount of the WATLI to ESTLI narrowing to 11.3%, as the WATLI peaked at 517¢ during late Winter, before widening significantly into early October toward a 30% discount spread as the WATLI fell sharply during early Spring – figure 2. The average seasonal pattern in the percentage spread and normal variation in the spread, as identified by the green shaded 70% range, suggests that the spread discount is likely to narrow again toward the 10-15% level as we head into the year end. Indeed, the spread discount has already started to narrow recently to 18.9% as falls in the ESTLI have not been matched by a decline in the WATLI.

The WATLI forecasted seasonal range for 2016/17 released in early August anticipated a Spring low of around 390-410¢. As the average patterns in figures 1 and 3 indicate the seasonal low in the WATLI usually occurs during late October/early November. Figure 3 outlines the percentage price gain pattern since January and clearly shows how much WA trade lambs have struggled this season unable to break above a 5% price gain all year.

What does this mean?

As the seasonality percentage price gain pattern indicates on figure 3 the WATLI tends to reach a trough during the month of November. Given the lacklustre season so far it is not unlikely to consider a percentage price loss since the start of the year in the vicinity of 15-20% to occur during late Spring. This would place the WATLI around the 400¢ level consistent with the WATLI forecast article released during August (see link above).  

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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