Great lamb prices but will they last?

Will record lamb prices hold?


Markets
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Mecardo analyst Matt Dalgleish says lamb producers have every reason for optimism.

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LAMB prices are at record highs in deflated terms. We know that export markets are helping drive lamb prices, so it’s worth assessing whether lamb importers are also forking out record dollars for lamb.

Even with the Eastern States Trade Lamb Indicator (ESTLI) sitting just below 800¢, in US$ terms the ESTLI still isn’t at a record (Figure 2).  

Back in 2011 when the Aussie dollar was at or around parity with the US dollar, the ESTLI in US$ terms was at 670¢/kg cwt.

This week the ESTLI remains below this level, at US 590¢/kg.

Lamb prices are not cheap in US terms but they have been more expensive, albeit only for a three month period of 2011.

The previous peak of lamb prices in US terms is still 14 per cent away in nominal terms and obviously further in real terms.

If the exchange rate stays steady and the ESTLI reaches 670¢ in US$ terms, it puts the ESTLI at Au905¢/kg cwt.

Matt Dalgleish

Matt Dalgleish

Those who study Meat & Livestock Australia’s (MLA) saleyard reports will have seen plenty of lambs making more than 900¢, so it’s possible the indicator could get there, time will tell.

This demonstrates that for Australian ag commodity markets, supply, demand and currency all conspire to provide the farmgate price.

For mutton, the upside seems to be stronger.

The National Mutton Indicator (NMI), while showing strong domestic pricing, in US$ terms (Figure 3), is still 23pc behind the record price set in autumn 2011.

While the dry weather has seen lamb supply tighten, older sheep are still coming to market well supplied and somewhat keeping a lid on mutton values.

What does it mean?

Looking at lamb prices in US terms helps to explain how strong prices currently are and whether they can improve (or not) in the future.

While lamb prices are extraordinary in Au$ terms, they are ‘only’ 20pc above the levels seen for most of 2017 for importers.

This suggests prices are sustainable for the short term and the good news is that prices of Au600¢ look cheap in the current environment.  

Eventually the spring flush will arrive and place pressure on prices.

Strong prices now and a stable or even easing Au$ will provide support in the coming months and like last year we may see a much subdued spring price decline.

There is still plenty of upside for mutton, especially when it rains.

Strong lamb and wool prices are likely to see a real squeeze on the supply of older sheep over the coming years and with new and existing markets having a healthy appetite for mutton surplus, sheep prices should remain strong.

The story Great lamb prices but will they last? first appeared on Farm Online.

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