By Matt Dalgleish | Source: MLA, NLRS, ACA
Last week saw a significant lift in throughput for heavy lambs in Victoria suggesting the spring flush is now underway in earnest in the south and prices softened accordingly. What can previous seasonal movements and the relationship of Victorian heavy lamb prices to the Eastern States Trade Lamb Indicator (ESTLI) tell us about how far heavy lamb prices can retrace into late Spring/early Summer?
Figure 1 demonstrates the recent surge in heavy lamb yardings at Victorian saleyards. Since the start of August weekly throughput has increased by 244% to see the most recent yarding figure of 15,249 head, sitting well above the five-year average for this time of year. Traditionally, November is the biggest month for heavy lamb throughput gains in Victoria, as the five-year average pattern shows. It is not uncommon to see weekly yarding figures increase by an additional 15,000 head by the time throughput peaks in late November.
Last season during September and October Victorian heavy lamb yardings increased from around 5,000 head to 26,000 head and corresponded with a fall in price from 590¢ to 450¢/kg cwt – figure 2. During the 2015 season the Victorian heavy lamb price had peaked in early July at 630¢ so the fall to 450¢ in October represented a 28% decline in price from seasonal peak to trough. According to the longer term average price pattern the usual decline in prices from peak to trough over the season is around 23%.
Applying a percentage price decline of 23% to the 2016 seasons July peak in Victorian heavy lamb price of 682¢ would see the Victorian heavy lamb price reach 525¢ in late November. However, if the price decline mirrored the 2015 season and declined by 28% this would put Victorian heavy lamb prices at around 490¢ come late Spring/early Summer.
Figure 3 outlines the percentage spread relationship between Victorian heavy lambs and the ESTLI over the season and shows the current pattern in spread for 2016, the 2015 pattern, the five-year average trend and the 70% range (green shaded area - which gives an indication of the potential seasonal variation in the spread as it is representative of where the spread has trended for 70% of the time). Interestingly, the spread has peaked during the last two seasons at around a 5% premium during July, which coincided with when the price of Victorian heavy lambs peaked and reached a trough near a 5% discount during the 2015 season when prices were also bottoming out in late October.
The wetter season has prompted an upward revision to the ESTLI late Spring seasonal forecast low from the 485-490¢ area toward the 510-515¢ level. An ESTLI trough in late November anticipated to be in the 510-515¢/kg cwt region suggests that the Victorian heavy lamb price is more likely to be trading around the 490-495¢/kg level, given the spread between these two price series at this time of the year is usually around a 5% discount.
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