Forward contracts provide stability in an uncertain market

Forward lamb contracts fill in a flash as producers look for stability

Coronavirus
Lamb prices have weakened from the extreme highs seen in late February and early March - especially in the case of export lambs. Forward contracts have provided producers with some stability amongst the current economic situation.

Lamb prices have weakened from the extreme highs seen in late February and early March - especially in the case of export lambs. Forward contracts have provided producers with some stability amongst the current economic situation.

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Forward lamb contracts fill in a flash as producers look for certainty in an uncertain market.

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Australia's lamb market found some form before the Easter break, mainly due to more favourable seasonal conditions lifting the pressure off producers and buying them some valuable time.

It could have also been due to markets closing for the Easter break and processors chasing lambs for this week's kill.

Whatever the reason, prices at saleyards across the eastern states generally lifted as yarding numbers lowered.

At Bendigo, Victoria, the sale reported to be $10 dearer, with quotes for quality trade lambs consistently around 840 to 850 cents per kilogram for well-finished stock of 22-26kg weight.

At Dubbo, NSW, lambs sold to $270 in a reduced yarding of 4600 with the firmest demand and prices across good quality trade weight lambs suiting supermarket and domestic orders.

Hence, it all may sound like business as usual on the lamb front, but the volatility in all markets due to the worldwide Covid-19 pandemic remains.

Overall, lamb prices have weakened from the extreme highs seen in late February and early March - especially in the case of export lambs.

And according to industry experts the immediate outlook doesn't see this trend altering.

In the latest Rabobank sheepmeat forecast report, senior Analyst for Animal Protein, Angus Gidley-Baird, reported the continuing disruptions to markets and the pessimistic global economic outlook as a result of Covid-19 anticipates the continuation of price falls through the month of April and beyond.

He said as Covid-19 spreads around the world, the resulting economic and foodservice disruptions will impact the Australian sheepmeat sector in different ways.

"Approximately 60pc of Australian lamb imports are consumed in foodservice, and with a strong focus on the foodservice market in the US, we expect Australian lamb exports to the US to come under downward price pressure over the coming months," Mr Gidley-Baird said.

With this type of industry outlook it is no wonder producers are looking for some sort of market certainty in the path of forward contracts.

Released in the past fortnight by export processors with prices all but matching 2019 figures, the autumn and winter contracts filled in a flash.

Forward prices followed levels seen at saleyards last year, without the July peaks, pitched in the 800-900c range.

According to Mercado market analyst Angus Brown, these prices are good news for growers, but he said the fact that they filled so quickly could be a worry for those producers holding onto lambs.

"While there is little pointing towards stronger lamb supply this winter, weaker demand will limit how much processors are willing to pay before cutting kills," Mr Brown said.

"On the other hand, any improvement in export demand, when combined with tight supply and a weaker Aussie dollar, could see lamb prices rally past last year's levels."

But in good news for Merino breeders Mr Brown believes it is the Merino lamb that is the pick of the pricing.

"While Merino forward prices are lower than the March peak, over the hooks forwards look likely to outstrip saleyard pricing, where they are usually more highly discounted," Mr Brown said.

Currently winter lamb supply is well above last year's levels, but with the panic selling now over for the time being, supplies are anticipated to drift back towards the usual winter lows.

Mutton is predicted to benefit from China emerging from the Covid-19 shutdown with exports to China expected to grow and prices rise.

The story Forward contracts provide stability in an uncertain market first appeared on Farm Online.

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