Mecardo Analysis - Are these lamb prices good from a historical perspective?

The smoothed average lamb price demonstrates that over the last forty years there have been a series of four major step ups in price (green arrows) followed by a consolidation phase (orange arrows) before a new step up in prices as demand expands.

From time to time Mecardo analysis demonstrates the growth in demand via our lamb demand curve chart – the last time we published this was in late February and is likely due an update, so keep your eyes peeled for that next week.

Interestingly, the last three price step ups in nominal lamb prices have coincided with the times that the Mecardo demand curve for lamb has demonstrated a shift to the right, signifying increased demand due to factors unrelated to price – such as growth in population, income or changes to competitor supply. I’ll elaborate on this in next week’s article on the lamb demand curve.

Analysis on the deflated ESTLI shows that the current surge in lamb prices have broken above previous deflated peaks, seen most recently at 766¢ during March 2011, and has moved outside the top of the normal deflated range (grey shaded zone representing where the deflated prices have been for 70% of the time since 1970) which was at 685¢ - Figure 2.

Looking at the long term deflated percentiles (deciles) for lamb prices as highlighted in Figure 3, we can see that the current level of 780¢/kg cwt for the ESTLI sits at the 92nd percentile of price data as far back as 1949.

Key points

   * Long term lamb price cycles show that over the last forty years there have been four major uptrends in lamb prices on the back of expanding demand.

   * Current lamb prices are at all time nominal highs and are nearing record deflated price highs.

   * Long term deflated price data going back to 1949 shows that the ESTLI at 780¢ is at the 92nd percentile

What does this mean?

Lamb prices in deflated terms are the highest they have been since 1974 and are approaching extreme levels as identified by the upper boundary of the 95% range (red dotted line) as shown on Figure 2. At these levels were likely to see some price resistance as we approach the 800¢ level.

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