Mecardo Analysis - Mutton over $6 – is it just crazy talk?

By: "Farm Tender" News
Ag Tech News
May 28, 2019
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This article is bought to you by Wallaloo Park.

By Matt Dalgleish | Source: MLA, ABS, ICS, Mecardo.

In our analysis last week, we suggested that the seasonal percentage price gain pattern for the National Mutton Indicator (NMI) could see it test as high as 660¢/kg cwt this winter. We are already breaking record prices for the NMI in nominal terms closing at 575¢/kg cwt yesterday. This analysis looks at the current dollar value of mutton since 1949 to see how high mutton prices have traded in the past, when adjusted for inflation.

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Click the link to recap on our seasonal percentage price gain pattern article from last week.

Using quarterly inflation data, we can adjust the historic nominal mutton prices to bring them all to current day values. Figure 1 outlines the long-term price trend for mutton on a nominal and inflation adjusted basis and we can see that while the NMI is breaking into new ground on a nominal basis when adjusted for inflation we can see that prices have been higher in the past.

In the period after the Second World War mutton prices rallied strongly reaching 950¢/kg cwt during winter of 1951 and saw a second peak at 598¢/kg cwt during winter of 1973. Interestingly, in both eras the mutton price was unable to sustain these levels for more than a quarter of the year, falling sharply afterwards.

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Statistical analysis of long-term inflation adjusted mutton prices shows that the average price has been 256¢/kg cwt with prices trading between 125¢ and 385¢ for 70% of the time since 1949 – Figure 2. The 95% range boundary shows that price movements above 520¢/kg cwt have been rare.

2019-05-28 Sheep 1

This is confirmed by the decile graph which shows that the current NMI of 575¢ is at the 98.8th percentile, in inflation adjusted terms. In other words, mutton prices have only been higher than now 1.2% of the time since 1949 – Figure 3.

2019-05-28 Sheep 3

Key points

* Mutton prices are at historic nominal price highs but are yet to eclipse previous price peaks when adjusted for inflation.

* Percentile analysis on inflation adjusted mutton prices shows that prices have been higher than current levels only 1.2% of the time since 1949.

* Strong offshore demand for mutton persists and this suggests that mutton prices are less likely to weaken quickly, as was the case in previous price peaks.

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What does this mean?

The inflation adjusted price charts demonstrate that there is a possibility that we will see the NMI break above $6 this winter. The real question is if we do see prices remain above the 95% range upper boundary of 520¢/kg cwt can they last at these levels for a sustained period?

In contrast to the previous peaks in mutton prices, the move higher in recent years has been more gradual, underpinned by strong and steady offshore demand for Australian mutton. The forecast for offshore mutton demand remains robust into the coming years which suggests we are unlikely to see mutton prices weakening sharply as they have in the two previous episodes of price peaks.

www.mecardo.com.au