Mecardo Analysis - August (bad for Dutton, but good for mutton)
- By: "Farm Tender" News
- Ag Tech News
- Sep 06, 2018
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By Matt Dalgleish | Source: DAWR, MLA, Mecardo.
Export volumes for Australian lamb have softened into late Winter while mutton flows have demonstrated strong demand during August. Offshore demand for mutton remains robust despite the relatively high export price of mutton compared to lamb. Seems like August was bad for Dutton, but great for mutton.
Although monthly lamb export levels have been in decline, since peaking in May, volumes had remained above the normal seasonal range. That is, until the release of the August trade figures by the Department of Agriculture and Water Resources (DAWR) which showed lamb exports back within the 70% range at 18,603 tonnes (Figure 1).
In contrast, total consignments of mutton for the month of August saw a 53% surge from the level reported for July to hit 15,741 tonnes. As the seasonal five-year trend for mutton exports demonstrates, it is not uncommon to see mutton flows begin to lift after the mid-season trough in July. However, the August 2018 consignment is 50% above the five-year average for August, mostly fueled by Asian and North American demand (Figure 2).
The reduction in offshore lamb demand was noted across all regional destinations and largely mirrors the decline in lamb slaughter levels noted across the East coast of Australia since May. Indeed, weekly lamb slaughter numbers have dropped 40% since May, so the combination of low supply and high prices appears to be taking their toll on offshore demand for Aussie lamb.
However, weekly mutton slaughter levels have been lifting steadily since June and are currently running 117% higher than the mid-season trough. The increased supply of mutton is seemingly being well absorbed by offshore interests as both the domestic and export mutton price has managed to hold its value over Winter.
Analysis of the percentage spread of the lamb export price to the mutton export price shows that the premium of lamb over mutton has been narrowing since the start of the year with the spread reducing by 13% from the first quarter to the second quarter of 2018 (Figure 3).
Key points
* Monthly mutton export consignments were up 53% from July to August.
* High mutton slaughter levels are being well absorbed by offshore demand.
* The export price spread between lamb and mutton is sitting just below the bottom edge of the normal range at a 31.9% premium.
What does this mean?
Since 2007, the monthly lamb export price to mutton export price spread has averaged a 52% premium and has spent 70% of the time fluctuating between a 32% to 72% premium. The current spread sits a whisker below the normal range at 31.9%.
As we head into the Spring flush, lamb slaughter is likely to pick up and mutton slaughter can’t be sustained at these high levels for too long. Given the current offshore demand for mutton, it’s looking like mutton prices will hold some value as we head into Spring, while lamb prices are likely to soften as the flush gets underway. This could flow through to even narrower spread premiums for export lamb to export mutton prices in offshore markets.
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