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Tuesday, November 06, 2018

What a difference a shipment makes.

By Matt Dalgleish  |  Source: MLA, NLRS, Mecardo

Key points

  • Turmoil facing the live sheep export industry saw a 280¢/kg cwt turnaround in the spread being achieved by WA farmers from April to September.
  • The announcement of the granting of an export license to RETWA has seen the spread narrow in favour of WA producers last week from a 215¢ discount to a 105¢ discount.
  • In percentage terms, the spread pattern between the WATLI and ESTLI has returned to long-term average seasonal levels for the first time in five months, after spending the June to October period very much below average.

2018-11-6 Sheep Fig 1

2018-11-6 Sheep Fig 2

The granting of a live sheep export license to Rural Export and Trading Western Australia (RETWA) has breathed life back into WA livestock prices, as 130,000 head of sheep are reported to be sent to the Middle East. WA Farmers president Tony York commented over the weekend that the shipment “should inject confidence into the industry”.

During August we released an article that demonstrated how the uncertainty surrounding the live export of sheep from WA had negatively impacted price spreads across a variety of West and East coast lamb and sheep markets.  

In some instances, price spreads for WA producers reversed 280¢/kg cwt. The spreads swung from a 50¢ premium being enjoyed earlier in the season to a 230¢ discount by the middle of spring, as the demand normally present from the live export sector evaporated, leaving WA farmers with limited sale options.

The recent resumption of the trade upon the granting of an export license to RETWA has further demonstrated the importance of the live sheep export industry, particularly to WA farmers. Comparison of recent saleyard trade lamb price movements between WA and the eastern states shows that the Western Australian Trade Lamb Indicator (WATLI) has managed to gain ground in the face of a weakening Eastern States Trade Lamb Indicator (ESTLI). Indeed, the price spread between the WATLI and ESTLI has narrowed to 105¢, the narrowest it has been in over eleven weeks (Figure 1).

Analysis of the spread pattern between the WATLI and ESTLI in percentage terms further highlights the significance of the live export trade to WA producers. The 2018 weekly spread pattern returned to long-term average seasonal levels after spending most of the last five months very much below average (Figure 2).

What does this mean?

The WATLI to ESTLI spread pattern was sitting at a 9% premium for WA farmers just prior to the release of the damning 60 Minutes footage of distressed, dead and dying animals. The subsequent turmoil faced by the industry saw the spread pattern reach a seasonal low of a 30% discount in late September. Since the announcement of the RETWA license approval, the discount spread has narrowed back to 15%, a fraction below the long-term seasonal spread for this time in the year of 13.7% discount.

The benefit that the live sheep export trade brings to WA farmers in terms of prices received is pretty clear. That isn’t counting the additional benefit the trade brings to others employed along the supply chain, such as livestock agents, transport operators, veterinarians, fodder suppliers, port administration and wharf staff, shipping companies and live export operators.

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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