Mecardo Analysis - Trade lamb price and the exchange rate
- By: "Farm Tender" News
- Ag Tech News
- Oct 25, 2018
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By Andrew Woods | Source: MLA, RBA, ICS.
Earlier this week Mecardo looked at the relationship between the 19.5 MPG wool price and the Australian-US dollar exchange rate, showing how the relationship varied with the amount of time considered. This article repeats the exercise for a NSW trade lamb saleyard prices series.
To all extents and purposes, the total Australian wool clip is exported (in the order of 98% of the clip). In contrast, around half of Australian lamb production is consumed locally, so logic would suggest any exchange rate effect will be weaker for lamb than for wool.
Figure 1 shows the distribution of the weekly correlation between a trade lamb price series and the AUD-USD exchange rate for the past 18 years. The correlation ranges from plus one (1) where the two series move in lockstep, to minus one (-1) where they move in the exact opposite direction. The distribution looks somewhat strange with two peaks each at the extreme end of the correlation range. There does not appear to be much of a pattern in the correlation.
In Figure 2, the time period is extended to a month, so the comparison is looking at how the lamb price and the exchange rate move in relation to each over 30 days. The correlation is distributed fairly evenly across the range of possible correlation which says there is no real consistent relationship between the lamb price and the exchange rate.
The timeframe is extended out to one year in Figure 3. The distribution has coalesced around very low to zero correlation. A correlation of zero means there is no relationship whatsoever. Figure 3 shows that the exchange rate is of no significance when looking at lamb prices across a year.
Figure 4 provides the rolling 1 year correlation between the lamb price and exchange rate from 2000 to 2018. It shows the correlation swinging between highly positively correlated and highly negatively correlated. The relationship can spend some time with a specific relationship, but history shows this relationship will change.
Key points
* The lamb price has no consistent relationship to the exchange rate.
* This lack of relationship holds across timeframes from one week to one year.
* There can be periods when the lamb and exchange rate holds in a consistent relationship, but these periods do not persist.
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