Mecardo Analysis - Export markets the key to ovine pricing
- By: "Farm Tender" News
- Ag Tech News
- Mar 05, 2019
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Up until the mid-noughties the Australian lamb market was largely driven by domestic markets. As such there was a limit to how high prices could go before consumers pushed back and moved to other proteins. Recently we have been hearing lambs is getting too expensive at domestic levels, but it appears there are no such problems in the export area. For growers of lamb and mutton this is especially important.
Meat and Livestock Australia’s (MLA) online Statistics Database has a wealth of data for scrolling through. The value of our lamb and mutton exports is available, it’s delayed by a couple of months, but we can now see how sheep and lamb processors managed to maintain margins through last winter and springs record price levels.
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On its own export value tells you how much lamb exports have added to the Australian economy, and how much income export processors are making. However, if we divide export value by kilograms exported we get a measure of how much importing countries are willing to pay for Australian lamb. The good news is that it is trending up.
Figure 1 shows lamb export values in ¢/kg trending up since 2013 broadly in line with the Eastern States Trade Lamb Indicator (ESTLI). In August and September last year tight lamb supplies and record prices saw values move into double figures for the first time. Export prices have eased since, as supply has improved, but processors did managed to keep them above 900¢/kg swt. Export prices have only been above 900¢ twice previously, in August and December 2017.
For mutton the story is similar. Figure 2 shows mutton export values following lamb closely, as the two meats can be substitutes in some markets. However, the mutton price at saleyard level never hit the highs of lamb, as supply remained relatively strong last winter and spring. Hence increasing mutton kills during the drought, as processors were likely making more money out of it.
The spread between export values and saleyard prices give a very rough proxy of lamb and sheep export processor margins. Figure 3 shows the ESTLI and National Mutton Indicator discounts to their respective export prices. Both have trended wider as costs of production have grown, and both are highly volatile month to month. However we can see that in December the spreads were very favourable for processors.
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Key points
* Lamb and Mutton export value reached record levels in ¢/kg terms last winter and spring.
* While export values have eased, they remain historically strong, and are supporting lamb prices.
* There is upside for lamb and mutton saleyard values if export strength is maintained.
What does this mean?
The export value data confirms anecdotal evidence of export processor who are coping ok with strong prices, while domestically consumers are starting to baulk at these levels. Obviously the lower Aussie dollar is helping exporters, as is the fact that lamb remains somewhat of a luxury meal in the US and China, and is not necessarily competing with pork and chicken at a retail level.
For lamb and sheep producers the good news is that if export prices can be maintained, there is room for upside in saleyard sheep and lamb prices. Ultimately it’s positive if everyone in the lamb supply chain is making money, and it appears that even at current historically high prices, this is still the case.
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