Mecardo Analysis - Was that the mutton low?

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By Angus Brown | Source: MLA

Key points

· Mutton prices have been declining in September, but have bounced this week.

· Rising yardings have been pushing prices lower, but weaker supply is still holding prices above last year.

· With the bounce this week, and supply rises slowing, we may have seen the mutton low.

August saw a decline in lamb prices, while mutton held firm. In September it has been muttons' turn to take a fall. The flock isn't in any danger of increasing, so this week we look into what is behind the fall in mutton, and where the bottom might be.

Mutton is not cheap, but is has come off highs which have held for the best part of four months. Last week saw the National Mutton Indicator (NMI) close below 550¢ for the first time since May, having lost 80¢, or 13% since late July. This week has seen a bounce in the NMI, moving back to 557¢/kg cwt.

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Figure 1 shows it was this time last year that the NMI tanked dramatically, falling 118¢, or 24% in the last week of September. The five year average shows the NMI usually falls at this time of year. We can see in figure 1 that late September generally sees an average fall of over 10%, but that it usually marks the end of the falls.

The five year average trend also tells us that the start of October usually marks the low for mutton prices for the year, so there might not be a lot more downside.

The available sheep yarding figures are over a week old, but we can see they have been on the rise. Figure 2 shows that mid-September sheep yardings were the highest since April. At this time of year it is usually NSW which is driving sheep yardings, and this is happening again. NSW contributed 72% of east coast yardings, and that should come as little surprise, given the weather.

NSW sheep yardings have rarely been higher, with levels only having been at stronger in 8 weeks last year.

Saleyards contribute a large portion of sheep slaughter, with figure 3 showing around 130,000 head were slaughtered on the east coast last week. With yardings around 95,000 head the smaller proportion is coming over the hooks.

Sheep slaughter is tracking close to the five year average, and it's hard to see it rising to last year's levels. There should be an increase in slaughter in November, but that is historically not enough to see prices ease.

What does this mean?

The forecast sheep supply suggests that mutton slaughter will continue to track well below last year's levels, and it could be expected slaughter will track at similar levels to the five year average. Figure 1 shows increased demand has mutton prices tracking at levels well above the five year average, despite similar slaughter.

The rise in sheep supply should come to a halt soon, as should the fall in price. A NMI low of 450¢ would be a good result for those selling sheep, and prices are likely to quickly recover when supplies tighten after spring. With the rally this week we might have seen the bottom of the mutton market, at levels which were record highs not that long ago.

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