Mecardo Analysis - How much upside for lambs?
- By: "Farm Tender" News
- Ag Tech News
- Mar 21, 2019
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Lamb supply continues to run at strong levels which is keeping a lid on prices. We continue to hear anecdotal evidence around disastrous scanning rates, and the break in the season is yet to arrive. The consensus is that lamb prices are set for some upside. The question is how far and for how long.
Figure 1 shows that east coast lamb slaughter has been tracking at very similar levels to last year. Lamb supply continues to defy gravity, with many pundits, including this one, having expected supply to drop off by now.
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It will be interesting to see if lamb slaughter can have a May rally, or if the sharp drop off we saw in June 2018 will come early. No matter when the supply drop comes, it will push prices higher.
If we look at lamb prices in US terms it still looks reasonably cheap. In fact, with the Aussie dollar being weaker than last year for much of the first quarter, the Eastern States Trade Lamb Indicator (ESTLI) in US terms has been cheaper. A weaker Aussie dollar suggests even more upside for the ESTLI than last year.
It is hard to see lamb slaughter dropping below the August and September levels of last year, but there are plenty of fundamentals suggesting it will. Fewer ewes were joined this year and scanning rates have been lower. It will take a widespread rain soon to see better survival compensate for fewer lambs born.
The ESTLI in US dollars averaged 575¢/kg cwt from July to September 2018. At the current exchange rate, 575US¢ equates to 815¢/kg cwt. Last year’s peak price in US terms just hits 900¢ in our terms. Both levels are shown as red lines on Figure 3 and both look pretty attractive.
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The record price in US terms was hit back in 2011 when the ESTLI reached 671¢/kg cwt. Since then, US lamb prices have risen markedly, so hitting a new high in US terms would not be a stretch. This could put the ESTLI north of 950¢/kg cwt, with the seemingly impossible 1000¢ in sight.
Key points
* Lamb prices are yet to have a rally this year, but there is plenty of upside.
* With a lower Aussie dollar and possibly tighter supply, lamb prices could go through 900¢.
* The coming winter is likely to see another year of record-setting prices.
What does this mean?
There won’t be many lambs sold at the high prices which are coming, but those lucky enough to have some at that time of year should reap the rewards. Sheep markets should also find some strength, especially if it rains, but then, no one will want to be selling.
Last winter the price records kept tumbling and late old season lambs, and early new season lambs are likely to again make new records.
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