Farm Tender

Mecardo Analysis - Retail lamb record offering support at yard level

This article is bought to you by Pepperton Poll Dorset & White Suffolk Stud. 

By Angus Brown | Source: MLA, ABARES. 

Last week we looked at retail lamb, beef and chicken prices in relation to cattle prices. Record retail lamb prices were somewhat expected, given the saleyard values of the past couple of years, but a little looking back tells us things weren’t too bad for retailers early this year, but they might be a little different now.

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Rallying retail lamb values in the December and March quarters were no doubt in response to record saleyard lamb values in the September quarter of 2018. In the March quarter, lamb consumers are reportedly paying 15% more for lamb than in March 18.

Over two years, retail lamb prices have gained 19.5%, and over three it is 30% higher. Tightening supply and very strong export demand are obviously forcing local consumers to pay more for less lamb.

Meat and Livestock Australia (MLA) are forecasting domestic lamb consumption at 6.8kg per head this year. This is down 9% on 2018 and 30% on 2015 (Figure 1). No doubt there is some resistance to rising lamb prices on a domestic level. This is especially the case when chicken and pork prices are remaining relatively low and beef hasn’t risen as strongly.

Consumers can blame the lower Australian dollar in part for higher lamb prices, but the drought impact on supply and increasing export demand are also playing their part.

The higher retail lamb prices have meant the last quarter of 2018 and first quarter of 2019 weren’t so bad for retailers. The ‘markup’ or premium for retail lamb over the saleyard value moved back to 166% in the March quarter. This markup has bounced higher from the lows seen in September 2018 when it got down to 97%.

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Things are still not that rosy for retailers, figure 2 shows that for most of the 15 years prior to 2014, the retail price ranged between 150 and 225% of the saleyard price. Things were still at tighter than historical levels, if somewhat improved early in 2019, compared to the two years prior to this.

In the June quarter, the retail market will have shrunk dramatically if retail lamb prices haven’t changed. For the June quarter to date, the ESTLI has averaged 780¢/kg cwt. The March quarter retail price was at a 122% premium. At the current ESTLI of 870¢, the retail premium is back near the lows of September 2018 at 99%.

2019-06-25 Sheep 1 2019-06-25 Sheep 2

Key points
   * Retail lamb prices have rallied strongly and hit a new record in the March quarter.
   * Domestic consumption is down with higher prices and strong export demand.
   * Saleyard lamb prices can’t rise too much further without a rise in retail lamb values.

What does this mean?
If we assume the retail price has remained relatively steady from the March to June quarter, it’s safe to say margins are pretty tight for retailers of lamb at the moment. While this means saleyard prices might struggle to move too much higher, the good news is the record retail values seen in March have helped prop prices up when supply was strong.

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With the domestic market still being our single largest destination for lamb, it seems consumers are getting used to paying more for lamb, even if they are consuming less of it.