Mecardo Analysis - Keeping it real
- By: "Farm Tender" News
- Ag Tech News
- Jul 30, 2019
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By Matt Dalgleish | Source: MLA, ABS, Mecardo
The Eastern States Trade Lamb Indicator (ESTLI) averaged nearly 930¢/kg cwt during July, after peaking at a new record price of 951¢ last week. While the ESTLI is at an all-time nominal record it has been higher in the past on an inflation adjusted or “real value” basis. Although, you would have to go back prior to 1958 to find higher real value peaks and there are only a handful of them.
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The monthly average price series for the ESTLI going back to 1949 is shown on Figure 1 and includes both the nominal historic price and the real value price. Quarterly inflation data is used to adjust from nominal prices to real prices and there have only been five years since 1949 that prices peaked higher than 951¢ in real terms. Furthermore, all these peaks occurred prior to 1958.
Statistical analysis of the ESTLI shows that in real terms the ESTLI has averaged 514¢/kg from 1949 to 2019 – Figure 2. Meanwhile, measuring of standard deviation either side of the long-term average provides us with a “normal” trading range or where the ESTLI has traded in real terms since 1949 for 70% of the time. This is highlighted by the grey shaded area on Figure 2 and is calculated between 325¢ and 703¢/kg cwt.
Two standard deviations above and below the average sets out the extreme trading levels, or where the ESTLI has traded for 95% of the time since 1949 and is shown by the red dashed lines at 137¢ on the lower boundary and 892¢ on the upper boundary. Effectively, the ESTLI, in real terms, has traded beyond these levels for only 5% of the time in the last 70 years.
Another way of assessing how extreme current ESTLI prices are in real terms is to look at the deciles, or percentiles. An ESTLI of 951¢ is at the 98th percentile, which means that since 1949 prices in real terms have only been higher than 951¢ for 2% of the time – Figure 3.
Key points
* Since 1949 the ESTLI in real terms has spent 70% of the time trading within a 325¢ to 703¢ range.
* Movements above 892¢ or below 137¢ would be considered extreme and the ESTLI peaked at 951¢ last week.
* An ESTLI of 951¢ is at the 98th percentile in real terms and since 1949 the real value ESTLI has only been higher than 951¢ for 2% of the time.
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What does this mean?
After two attempts at trying to crack above the 950¢ level the ESTLI has softened toward 900¢ again yesterday. We're only a month away from the beginning of the spring flush of new season lambs and with prices on a cents per kilo basis at these record levels both in nominal and real terms there will be a real incentive for producers to get lamb off as soon as they reach suitable weights.
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