Mecardo Analysis - Export sales should lamb prices hit new records
- By: "Farm Tender" News
- Ag Tech News
- May 30, 2019
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By Angus Brown | Source: MLA, DAFF, HRI Buyers Guide.
We know that on a domestic level the price of lamb is not sustainable. While supermarkets and butchers won’t be passing on the full price rise we have seen at farm level, domestic consumption will slow. This week we look at whether exports markets can sustain current high prices, with supply unlikely to improve for some time.
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Earlier this week we saw trade and heavy lambs sell for more than $10/kg at Bendigo, and there is plenty of speculation as to how processors can afford to pay this sort of money. The best money is in lambs at the heavier end of trade weights, and into export lambs.
It seems exporters are competing strongly with trade buyers for lambs ranging from 22-28kgs cwt. The east coast heavy lamb indicator was quoted yesterday at 912¢, relative to an Eastern States Trade Lamb Indicator (ESTLI) of 880¢.
To assess if export prices are better than last year we thought we’d take a look at lamb export prices. Export lamb prices are a little hard to come by, but Meat and Livestock Australia (MLA) do publish wholesale lamb prices from the US, much of which comes from Australia and New Zealand.
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The USA is one of our biggest lamb markets, so far this year taking 23% of our export lamb (Figure 1). The US is easily our largest market by value, last year making up 30% of Australia’s lamb export value. As such, looking at US wholesale lamb prices and their trends can tell us something about how much exporters might be able to pay.
Figure 2 shows the wholesale price of US legs of lamb and racks of lamb, converted to Australian dollars per kilo, along with the Eastern States Trade Lamb Indicator (ESTLI). Obviously, US wholesale cuts don’t have the same volatility as saleyard lamb prices, but they have been trading in a range on an upward trend.
The US leg and rack prices aren’t quite at record highs, but they are not far off. The wholesale price of a leg of lamb was higher back in July 2017, while the rack of lamb was only marginally higher early in January.
US wholesale lamb prices have improved since saleyard lamb prices peaked in August last year. The US leg has gained 7% and the rack 6%. Does this mean lamb prices are going to peak 6% higher than last year? Not necessarily, but rising wholesale prices in the US market are only good news for a higher peak than last year.
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Key points
* Domestic and export lamb buyers are competing strongly for heavy trade and export lambs.
* Export lambs markets are key to sustaining high values, with prices unsustainable at domestic levels.
* The ESTLI should break through 900¢ but further upside seems limited given export lamb prices.
What does this mean?
Exports markets look like they will help drive saleyard lamb prices to new highs over the coming months but for average prices to reach $10, lamb importers might have to pay a bit more. A 6% rise on last year’s peak still ‘only’ puts the ESTLI at 930¢.
The increased demand from China for lower value cuts might help push values higher, as they move towards being our biggest export market. The sustainable level of prices is yet to be found but the higher the market goes, the higher the base becomes.
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