Mecardo Analysis - Have we seen the bottom?
- By: "Farm Tender" News
- Ag Tech News
- Nov 29, 2018
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By Angus Brown | Source: MLA, Mecardo
Being based at the late spring/early summer lamb capitals of Hamilton and Ballarat, the most often asked question we get at this time of year is “Have we seen the bottom?” or “Can it go any lower?”. Historical data can’t give a definitive answer, but it will give us a good idea of whether the market can find new lows, or if it’s all upside from here.
Meat and Livestock Australia’s (MLA) and Australian Wool Innovations (AWI) sheep and wool survey estimate there are between 5 and 6 million head of breeding ewes in South West Victoria and South East South Australia. Of these, around 60% are either non-Merino, or Merinos joined to ‘other’ Rams. The lambs from these ewes are the main source of supply for Victorian and South Australian processors during the late spring and summer.
The heavy supply of southern lambs collides with later northern lambs and shows up in both increased yardings and slaughter numbers at this time of year. Rising supply has an annual impact on prices.
Figure 1 shows that the spring doldrums, on average, are nearly over. The five year average shows that the Eastern States Trade Lamb Indicator (ESTLI) hits its annual low in mid-October and starts to climb at the start of December.
This year the timing of the low has been similar, with heavy falls in September, bottoming out in early October. There was an abnormal rally in late October before prices returned to the low for the financial year to date of 680¢/kg cwt.
While November usually signals the end of the price lows, prices have fallen into the end of the year in the past. Figure 2 shows that in 2016 lamb prices fell heavily into the end of the year as lambs were offloaded before Christmas. The result was a dearth of supply in January and a strong rally.
In 2014 prices went the other way, gaining 20% in December as supplies tightened early. The season in 2014 was similar to this year, in that a dryer than normal spring saw supplies hit the market early. This left a gap in December.
Key points
* Lamb prices have again hit lows for this financial year but remain historically strong.
* The normal price trend is a slight rise through December, but it can be variable.
* With low slaughter to date, it seems unlikely that supply will tighten significantly before Christmas.
What does this mean?
We are still in the dark as to how many lambs will come to market this year. Figure 3 shows lamb slaughter running well behind average right up until last week, which would normally mean there are plenty more to come. This was the trend in 2016, with slaughter peaking in December.
In 2014, strong spring slaughter led to weaker supply in December and rising prices. Given the lack of lambs seen so far this year, this might be a stretch.
The most likely scenario seems to be steady supply through until the end of the year, with weaker levels in the New Year as sucker lamb supply finishes.
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