Mecardo Analysis - One more late Winter surge for ESTLI
- By: "Farm Tender" News
- Ag Tech News
- Jul 04, 2019
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This article is bought to you by Pepperton Poll Dorset & White Suffolk Stud.
By Matt Dalgleish | Source: MLA, Mecardo.
The Eastern States Trade Lamb Indicator (ESTLI) hit 900¢ late last week and closed 2¢ back above this historic high yesterday. This piece looks at the technical price picture to see if we can manage another probe higher during July or if the rally is all done and dusted for this season.
An assessment of the percentage price gain/loss pattern for the ESTLI since the start of 2019 shows that Winter gain started nearly two months earlier than in 2018, but the magnitude of the gain has been similar, reaching 35% above January’s opening price of 666¢ (Figure 1).
The long-term average price gain/loss pattern shows that the seasonal peak in the ESTLI normally comes in late July/Early August. However, last year it was delayed when the ESTLI hit 884¢ in early September. Does this signal that there is more price upside to come as we head towards Spring?
Looking at the upward trend channel that has existed for the ESTLI since mid-2013 we can see we are nearing the top of the channel at around the 940-950¢ region (Figure 2). While current ESTLI levels are at record highs in A$ terms, the falling currency exchange rate has meant we are yet to see the price peak when converting into US$. This has kept our lamb product competitive in offshore markets despite the higher local prices.
Indeed, the ESTLI peaked in US$ terms at 673US¢ back in February 2011 when the A$ was near parity at 1.02US$. The A$ is now under 0.7US$ so we would need to see the ESTLI up nearer 950-960¢ in A$ terms to see it back nearer the US$ peak levels.
A technical perspective shows that the ESTLI is beginning to show signs of bearish divergence, which is when price patterns make a new high but the relative strength index (RSI) fails to make a corresponding new high. This occurred when the ESTLI peaked last September and is beginning to occur now (Figure 3).
Key points
* The ESTLI has now gained 35% since January reaching a record of 902¢/kg cwt yesterday
* Technical indicators suggest the upward move in the ESTLI is running out of momentum and is near a peak
* The easing A$ has helped support the ESTLI in recent weeks but it should find stiff resistance ahead of the 950¢ level.
What does this mean?
The bearish divergence shows that the market upward movement is running out of momentum at present which signals we can’t be too far from a peak. The percentage price gain/loss chart confirms that we are also near the upper range of what is normal for price gains during a given season. This isn’t to say we can’t extend higher into late Winter, but the magnitude of further gains is likely to be limited.
Gut feel tells me that the market has one more rally in it in the coming weeks, but we should find decent resistance ahead of 950¢. Hanging my hat on a peak this season I’ll call the high to come in at 935¢ during July.
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