Mecardo Analysis - Would a phase out of live sheep trade impact the East? (Part 1)
- By: "Farm Tender" News
- Ag Tech News
- May 02, 2019
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By Matt Dalgleish | Source: MLA, ABS, NLIS, DAWR, Mecardo.
This article is bought to you by C Pearce Contracting.
Average monthly live sheep export volumes have been running below the five-year trend for the first quarter of 2019 and we are approaching the northern hemisphere summer period where numbers exported are expected to halt entirely. The prospect of an Australian Labor Party (ALP) win and a phase out of the live sheep trade looms, should this be a concern for Eastern producers?
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Undoubtably, the live sheep trade is a West Australian centric industry and sheep producers in the West, along with a myriad of regional industries, such as fodder suppliers, transport operators and livestock agents, gain a benefit from being participants in the value chain. Historically, around 80-85% of the live sheep trade emanates from the West and annual live sheep volumes in WA account for around 30% of their turnoff.
During the first quarter of 2019 average monthly consignments of live sheep have been running around 10.5% below the five-year trend and 11.5% less than the 2018 season – Figure 1. As was the case last year, the trade ceased over the northern hemisphere summer from July to September and it is likely that the same will eventuate this season.
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The impact on WA sheep and lamb price spreads to the Eastern states during 2018 showed a significant deterioration with the closure of the live trade, with WA sale yard price spreads moving adversely for WA producers by over 200¢ and a moderately strong correlation between low live export volumes and heavily discounted WA price spreads – Figure 2.
In a Rural Press Club of Victoria speech on 30th April, the shadow agriculture minister in the ALP, Joel Fitzgibbon, fielded a query on the live sheep trade by a member of the Mecardo team where he clearly outlined their intention to phase out the live sheep trade and stated unequivocally that the “door was shut” to negotiating a workable solution to keep the trade going, irrespective of the economics.
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This phase out will mean significant adjustment to the WA sheep/lamb producers operating model, but would there be a flow through negative impact to the East coast markets? Historically, we have seen flow of sheep across from the WA into eastern markets at times when the WA prices were discounted significantly enough to make it viable. Figure 3 highlights weekly transport data from WA farms to SA processors from 2010 to 2017 that shows a surge in WA sheep travelling to the east once dollar per head prices in the west were more than $35 cheaper.
Key points
* During the first quarter of 2019 average monthly consignments of live sheep have been running around 10.5% below the five-year trend and 11.5% less than the 2018 season
* The closure of the live trade during the northern hemisphere summer in 2018 saw WA sale yard price spreads moving adversely for WA producers by over 200¢
* ALP shadow agriculture minister, Joel Fiztgibbon, outlined their intention to phase out the live sheep trade and stated unequivocally that the “door was shut” to negotiating a workable solution to keep the trade going, irrespective of the economics
What does this mean?
Without a live export option in the west, prices over there are likely to be cheaper than in the east more often, and discounted more heavily, than what the historic spread pattern shows.
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Assuming a worst-case scenario during the adjustment phase of a live export closure, whereby all WA sheep that would have gone to the live trade make their way into eastern markets, this could mean around 1.5 million extra sheep hitting east coast markets for the next few years while the WA industry adjusts.
Next week we will run some numbers around the potential impact of these additional WA sheep hitting the east coast markets and what that could mean for mutton prices in the east.
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