Mecardo Analysis - Are you a lamb seller at last year’s levels?

This article is bought to you by Mobile Plunge Dipping Services. 

By Angus Brown | Source: MLA. 

Key points

· The first forward contracts for the spring have been released, and are close to last year's levels.

· There is plenty of uncertainty surrounding price and supply, and timing of supplies but it's more likely to be tighter this year.

· Locking in lambs at close to record spring levels is good business, with short term depressions likely.

Export lamb processors have started thinking about spring lamb supplies, with forward contracts released this week. Contracts are on offer for late August to the start of November, we take a look at whether they are good value, or if growers should hold out.

Anecdotally we are hearing that while September prices are attractive, once they get under 750¢ producers might start to baulk. The forward prices are, however, still close or at all-time highs for that time of year.

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It's relatively unusual for processors to offer forward prices for spring. Spring is normally a time of increasing supply and lower prices. With low lamb marking rates, extreme tight supply in the winter, and potentially weak mutton supply, it is not that surprising to see processors getting on the front foot.

We often see forward lamb prices pitched close to last year's levels, and the current offering is no different. Figure 1 shows how the forward prices relate to levels seen in recent years and the five year average.

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It's interesting to see September forward contract pitched above where the Eastern States Trade Lamb Indicator (ESTLI) finished last week. New season lambs can be locked in for late August and early September at 860-880¢/kg cwt. Early September was when lamb prices peaked last year and it seems prices are expected to rally when maintenance shutdowns are over.

Through September and October, forward offers decline but not as rapidly as saleyards did last year. The end point, in November, has prices at 700-720¢/kg cwt. Forward contracts are largely pitched at close to record price levels for that time of year, so in theory, they are good selling.

If growers are going to have lambs ready to go in the spring, the decision to not lock in comes down to believing that the supply and demand equation is going to see higher prices than last year.

On the demand side, we know export markets are strong and there might be more competition for lambs if sheep are in short supply.

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Its likely that lamb supply will be lower than last year, but the timing of supply will be the key. With lamb coming later than usual from NSW, they could clash with the beginnings of the southern supply.

Merino, SAMM and Dohne lambs are discounted 30¢ on the crossbred lamb prices, and figure 2 shows they are priced well ahead of Merino saleyard values from last year.

What does this mean?

There is plenty of uncertainty surrounding price and supply for the coming season, but growers selling lambs at what are historically very strong spring levels can't go too far wrong. The five year average spring price is over 100¢ weaker than those on offer.

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If we were to take a punt, we'd say prices are more likely to be higher than last year rather than lower. Seasonal pressures could easily see short term depressions in price, which sends them below the 700¢ mark and if the season cuts out and lambs have to be sold, many producers could be kicking themselves.

www.mecardo.com.au