Mecardo Analysis - OTH vs Saleyards - What’s the difference?
- By: "Farm Tender" News
- Ag Tech News
- Nov 20, 2018
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By Angus Brown | Source: MLA, Mecardo
In recent weeks we’ve been talking about saleyard throughput ramping up in South Australia and Victoria. With so many lambs going through saleyards, you’d think they were offering better value than selling over the hooks. Here we take a look at price spreads and costs, with the effort of selling over the hooks seemingly offering a handsome payoff.
It should be noted that in this analysis we are using average numbers. The Victorian Trade Lamb Indicator is an average price of all the lambs sold in Victoria over the last week. The Victorian Trade Lamb Over the Hooks Indicator is the average of prices reported by processors at the start of the week. Obviously, there will be lambs which make more than the indicators and lambs which make less.
Figure 1 shows the Victorian Trade Lamb Indicator tracks the average over the hooks trade lamb price very closely. There can never be a large spread between Over the Hooks and saleyard prices for too long.
Over the last ten years, the Victorian Trade Lamb Indicator in saleyards has averaged a 3¢ discount to the Over the Hooks Trade Lamb price. If using an agent for both over the hooks and saleyard sales, the extra cost of around $1/head in saleyard fees needs to be deducted from the saleyard prices. This gives a long-term net discount in the saleyards of around 7¢/kg. For a 20kg cwt lamb, the difference is only $1.40 per head, which in many cases would be made up in freight savings.
If we compare selling direct Over the Hooks and account for a 5% commission, at current lamb prices saleyard values need to be 35¢ higher than over the hooks values to give the same net result. This is assuming the same freight cost.
Figure 2 shows that at 5% commission, saleyard net prices rarely outstrip the average over the hooks price. It generally only happens when saleyard values jump to extreme highs and doesn’t last long.
With a percentage based commission system, the higher prices are, the more the premium in saleyards needs to be to equate to selling direct. In 2012, saleyards needed to hold a 22¢ premium to give the same net price, so far in 2018, it has been 35¢/kg cwt.
Key points
* Victoria is seeing a surge in lambs entering saleyards, with prices similar to Over the Hooks values.
* Over the long term, the average Vic Over the Hooks Trade Lamb is very close to the Saleyard Indicator.
* Selling direct Over the Hooks is likely to give a better net price over the long term than selling in saleyards.
What does this mean?
The fundamental difference between selling in saleyards and over the hooks is with the former you have an idea what the price will be, but don’t know with certainty until the auction is over. With the latter, the ¢/kg price is set. As such, there will be weeks when lambs booked in over the hooks early will look cheap and weeks when they are expensive.
Based on the average prices reported by MLA, those who have the numbers to sell direct over the hooks are likely to come out in front, largely through savings in commission and fees. Selling over the hooks through an agent over the long term will give a similar net result to selling through saleyards.
It makes sense to follow both local over the hooks and saleyard prices, as there will be times when the punt in the saleyards has a better chance of paying off.
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