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Friday, July 29, 2016

Tight supply keeps lamb prices firm.

By Matt Dalgleish  |  Source: MLA, NLRS

2016-07-29 Beef Comment Fig 1

2016-07-29 Lamb Fig 2

2016-07-29 Lamb Fig 3

The Eastern States Trade Lamb Indicator continues to bounce around above 600¢ with a close 26¢ higher this week to 635¢/kg cwt. East coast mutton marginally higher too by 4¢ to see it reach 387¢, but the National Mutton Indicator was softer on the week. Closing 7¢ lower to 374¢, dragged down by WA and SA sheep prices.

A reduced east coast lamb slaughter figure from the week ending 22nd July, indicative of tighter supply, propping up prices across the eastern seaboard for most categories of lamb – figure 1. Victoria saw price gains in all lamb categories, with merinos the big winner posting a 9.5% increase for the week to 562¢/kg cwt. A different story in NSW with merino lambs there the only category not to post a price gain, NSW trade lambs the stars closing up 3.2% to 636¢/kg.

SA trade and light lamb posting impressive surges, up 8.8% (576¢) and 11.5% (513¢), respectively - although still well behind their east coast counterparts. Fairly flat prices in SA for the other lamb categories and SA mutton the weakest mover in the region with a 7.5% fall to 366¢.

WA mutton mirroring the SA falls with an 8% decline to 285¢/kg cwt. WA lamb prices somewhat mixed with merino up 5.3% (471¢) and light lambs down 1.8% (468¢). Although given the increase in yardings this week in the west to 15,024 head (figure 2), 23.5% above the five-year average for this time of year, the saleyard prices for most categories of lamb held up reasonably well.

Figure 3 revisits our dry year ESTLI percentage price gain seasonality chart from an earlier analysis piece, to recap on the previous analysis view the link here. Now that the BOM forecast into spring is for continued rain it seems less likely that the ESTLI percentage price gain pattern will continue to track along the dry-year average pattern – (black dotted line). A more probable scenario is for the ESTLI to begin to track closer to the wet year average (solid blue line) heading toward spring, as producers opt to hold onto lambs a little longer fattening them on the abundant grass expected. 

The week ahead

The balancing act for producers will be to decide how long to hold onto lambs for added weight gain and when to sell as the price will come off when the spring flush arrives. Sell later for more weight and lower prices or earlier for less weight and higher prices.

The 2016 pattern of the ESTLI percentage price gains as highlighted on figure 3 is anticipated to hover around the 20-25% area (600-640¢ level) into mid-late August and then start to decline towards the seasonal low in October/November with the expectation that the ESTLI will bottom out in spring at around 480-490¢.  

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