Mecardo Analysis - Are cheaper than expected lambs presenting opportunity?
- By: "Farm Tender" News
- Ag Tech News
- Jan 22, 2019
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By Angus Brown | Source: MLA.
While lamb prices are historically strong, they are not as strong as many, including us, expected late last year. Feeding lambs has been a marginal enterprise at best if lambs weren’t contracted. With restocker lamb prices close to five month lows, and harvest over, it’s time to revisit the numbers on finishing lambs.
Restocker or feeder lamb prices aren’t that expensive at the moment. Restockers are paying similar money to this time last year, and are as cheap as we have seen in the last five months. Weaker finished lamb markets are keeping a lid on restocker demand, as competition at the light slaughter lamb crossover is not as strong as it was back in the spring.
Figure 1 sees restocker lamb prices dipping, sitting at 664¢/kg cwt. It maintains a small premium to the Eastern States Trade Lamb Indicator (ESTLI) which was 651¢ on Friday. The question of whether it’s worth finishing lambs depends, as always, on the sell price of the finished lamb.
For the ESTLI 800¢ seems a long way off at the moment, and that is the best case scenario. The best forward prices for March and April delivery are around 740¢/kg cwt, so we can use that as our expected price. Worst case is a trend similar to last year, which saw the ESTLI weaken all the way into May, so we can use 620¢.
The price of feed has eased a little from the pre-harvest highs, and a full ration can be put together for around $500-550/t. For those finishing on green feed, where available, the margins on lambs looks good. With restocker lambs at a small premium to finished lambs, and finished prices relatively high, the gross margins are as good as they have ever been.
The good gross margins are of course due to the high cost of feed. If finished lamb prices continue to trend down, feed costs outweigh gains. At 740¢/kg cwt there is a margin in finishing, especially in very efficient operations, and at 800¢ there is a good dollar in growing out lambs.
Key points
* Restocker lamb prices are close to five month lows, and present good gross margins on finishing.
*The cost of feed means price rises will be required to make money out of feeding lambs.
* Much depends on the weather, with plenty of upside, and some downside possible.
What does this mean?
There was a time in the not too distant past when getting over $100 for store lambs was great money. When trade lambs are making north of $150/head the $100 store lamb loses some lustre. For those holding lambs and thinking about feeding, the numbers should be run carefully, and some cover sought on finished lambs.
Hopefully by next week we’ll have more solid supply data with which to make price forecasts. As always much depends on the weather, as a big rain could see lamb supply tighten and price rally sharply.
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