Mecardo Analysis - ESTLI nearing seasonal lows
- By: "Farm Tender" News
- Ag Tech News
- Feb 14, 2019
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By Matt Dalgleish | Source: MLA, NLRS, Mecardo.
Trade lamb prices have softened by around 6% since the start of the season across the Eastern seaboard. However, analysis of previous seasons percentage price gains/losses shows that we may be nearing seasonal lows for the Eastern States Trade Lamb Indicator (ESTLI).
The percentage price gain/loss pattern for the ESTLI for the 2019 season is outlined in Figure 1. Included on the chart is the 2018 pattern, the ten-year seasonal average pattern and the 70% range. This range identifies where the ESTLI has fluctuated for 70% of the time throughout the season over the last decade and gives an indication as to price movement that would be considered normal.
For much of the first half of 2018 the ESTLI underperformed, compared to the average pattern, spending January to June trending along the bottom end of the normal range. Tightening supply late in Winter saw the ESTLI improve significantly to see it breach the upper end of the 70% range into early Spring as it peaked at 884¢.
So far this season the 2019 pattern has roughly replicated the start of 2018, trekking along the lower end of the 70% range. During a weaker season the 70% range shows that it is not uncommon to see trade lamb prices soften up to 10% in the first half of the year.
Applying this measure to the opening ESTLI of 662¢ would suggest it would be uncharacteristic to see the ESTLI breach too far below the 595¢ level in the first half of this season, particularly if BOM forecasts for the Autumn break begin to show that chance of rain. Last year the failed Autumn break saw the ESTLI trade below the 70% range during April, losing 14% from the opening price to hit a low of 571¢.
An analysis of previous seasons lows, highs and average annual ESTLI levels since 1998 shows that on average the seasonal trough is 20% below the annual average ESTLI, while the seasonal peak is usually 24% higher than the annual average ESTLI. Furthermore, in a given season the peak has shown to be 55% above the trough, on average across the last two decades. Figure 2 demonstrates the annual average ESTLI and the range that has been recorded each year.
Based on the relationships between seasonal troughs, peaks and average annual ESTLI levels from the past twenty years the seasonality pattern suggest that the 2019 ESTLI will post an annual average of 765¢ (as identified by the green dotted trend of Figure 2).
Key points
* Trade lamb prices across the East coast have eased 6% since the start of the season.
* Historic fluctuation in trade lamb prices demonstrate that its uncharacteristic for them to fall more than 10% during the first half of the season.
* Seasonality patterns in the ESTLI suggest a likely range during the 2019 season between 600¢-900¢, so we may not be too far away from a base.
What does this mean?
The level of 765¢ is lower than what the supply analysis suggests for the ESTLI annual average this season, as was pointed out in last weeks analysis article entitled “Fewer lambs but timing of supply remains the question”. Indeed, the tighter supply anticipated this season places the ESTLI annual average estimate closer to 840¢ according to the supply forecast model, assuming there is no significant change to domestic and offshore demand.
With an ESTLI currently sitting nearer the 640¢ level we would need to see some significant upside movement soon to get an 840¢ annual average by the end of 2019. Based on the seasonality analysis on the troughs, peaks and averages were anticipating a likely range in the ESTLI of 600¢-900¢ this year, so perhaps we aren’t that far from a low in the ESTLI in the short term.
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