Mecardo Analysis - Export markets continue to drive lamb demand
- By: "Farm Tender" News
- Ag Tech News
- Aug 07, 2018
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By Angus Brown | Source: MLA, Global Trade Atlas, DAFF
We have been talking for a while about lamb export markets driving the record lamb prices at saleyards. The latest export figures and export values show a squeeze on exporters, but interestingly, things have been tighter in the past.
The July export figures released this week weren’t extraordinary, but they were still strong. Since lamb prices went through 700¢ and headed towards 800¢, we have been hearing that lambs are getting too hot for export markets.
Despite high prices, July lamb exports were 12% stronger than July 2017. There was a fall in exports to the US, which were down 9%, but exports to China were up 52% on July 2017 and remarkably for this time of year, it was the fourth highest month on record.
We only have lamb export value figures up until June, but they still show some interesting trends. We can see in Figure 1 that lamb export values, converted to cents per kg shipped weight, jumped higher in June. While not hitting record highs, it seems that tightened supply in June saw competition strengthen and export prices gain 13% to hit 898¢/kg swt.
Figure 2 shows that the average Eastern States Trade Lamb Indicator (ESTLI) of 656¢ was at its largest discount to export values since December. This suggests margins for lamb exporters were pretty good in June.
Obviously things changed in July, with the average ESTLI coming in at 748¢/kg cwt. If we plug this price in and assume unchanged export values, the ESTLI discount comes in at 150¢. This is a much tighter margin, and we expect export values would have risen somewhat, but even if it’s right, we have seen things tighter in 6 months out of the last four years. Back in 2011, the margin between export price and lamb price was as narrow as 50¢.
It is worth noting, that generally when the margin between export values and lamb prices does close under 150¢, it reverts quickly. Fortunately for growers, it’s not always falling lamb prices, it can be rising export values as well.
Key points
* Lamb exports remain stronger than last year and export values were on the rise in June.
* June saw a wide spread between export values and lamb prices, which helped drive record saleyard prices in July.
* Strong export values should continue to support lamb prices until supply can ramp up.
What does this mean?
Export markets are getting used to lamb prices above 800¢ in our terms. We have been there for 15 months now, and it’s hard to see them falling back below without a significant lift in supply.
There is always a chance of the currency or trade policy related ‘black swan’ but in the absence of these factors, we can expect export markets to continue to help drive good prices for lambs. Maybe lamb prices won’t stay above 700¢, but a fall below 600¢ seems unlikely, at least in the short term.
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