Mecardo Analysis - US lambs remain expensive, even relative to our records
- By: "Farm Tender" News
- Ag Tech News
- Mar 29, 2019
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By Angus Brown | Source: MLA, USDA.
This article is bought to you by Entegra Sheds.
Earlier in the week, Mecardo looked at lamb exports, and in particular, the growth in exports to the US. Given this, it’s worth reviewing the US lamb market to look at why they are after our lambs and how much they can pay for them.
We have seen strong growth in Lamb exports to the US over the past 20 years and it’s looking like it might hit a new high this year. The US cattle herd makes ours look paltry, but the US love of cattle doesn’t flow over into their ovine cousins.
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The latest US sheep flock estimates stand at 5.2 million head. The decline in the US flock has slowed, being just 150,000 head fewer than in 2012. Back in 1960s however, the US had 33 million sheep. Much of the decline can be put down to expanding cropping and cattle areas, at the expense of sheep.
The US sheep flock is 7.6% the size of Australia’s and last year produced 2.25 million lambs for slaughter. This is just 10% of Australia’s lamb slaughter. As outlined earlier this week, the US economy is growing, as is its population. With growing demand for lamb and a steady, but small flock, the US has to come to either Australia or New Zealand.
US lamb prices rallied strongly in 2014 and have remained strong ever since. There is plenty of seasonality in US lamb prices, figure 1 shows that in our terms the usual range is 900 to 1100¢/kg cwt.
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We can see that the Eastern States Trade Lamb Indicator (ESTLI) has been trending higher over the past five years. Much of the improved local prices can be put down to export demand. Even at the record prices we have seen over the last year, most of the time lamb is likely entering the US cheaper than the local product.
Figure 2 shows how the US premium to the ESTLI has been shrinking as Australian prices move higher. While a 200¢ premium used to be the average, it now seems to be as close as the ESTLI can get to US prices before they retreat.
Key points
* The US sheep flock has steadied, but lamb slaughter remains very low compared to Australia.
* US lambs prices remain very strong and hold a premium to Australian values.
* There looks like there is room for Australian prices to rise before it becomes expensive in the US.
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What does this mean?
US lamb prices are currently at a 366¢ premium to the ESTLI and US prices tend to rise in the northern spring As such it looks like there is some room in the export market for lamb prices to move higher.
This fits pretty well with the forward prices which have been on offer from exporters, which are pitched 100-150¢ above the current ESTLI and look like they are close to the limit of values. That is, of course, unless US prices rally back to 1100¢ in our terms, in which case there could be further upside.
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