Lamb market cops low offers, weight penalties

Forward contract price offers have fallen below expectations marking a significant change to usual open-ended deals for lambs.

All action: While processors signal a preference for lambs under 30kg cwt through direct pricing, the message becomes distorted when saleyard buyers chase big lambs to sale-topping money. Picture: CHLOE SMITH

MARKET signals for lamb seem convoluted, with forward price offers for January not aligning with trends in the auction system.

The latest forward prices put on the table by major exporters JBS Swift and Thomas Foods International include some of the harshest penalties for extra weight the industry has seen in recent times.

The prices have also been pitched below current saleyard averages being recorded in the spring flush of suckers, which in itself is unusual, as forward prices traditionally have to offer some enticement for farmers to lock in lambs.

The following is the current state of play, based on auction results versus forward contract details, as provided to The Weekly Times by selling agents.

At the close of selling earlier this week, the average price for heavy lambs sold at saleyards was listed at 752c/kg carcass weight, and trade lambs at 762c/kg in a firming market.

online artwork dec 9 jenny kelly

Details provided for forward contract lambs delivered in January were:

AN OFFER of 720c/kg for lambs delivered to ALC in Colac on a grid weight of 18-32kg cwt.

AN OFFER of 740c/kg for lambs delivered to JBS on a tighter grid of 18-30kg cwt.

The notable sidebar to these offers was weight penalties, agents reported.

For lambs that exceed 32kg and top out at 36kg, ALC has imposed a $1/kg penalty, which would lower the rate for these extra heavy lambs down to 620c/kg.

Break the 36kg bar and these super-sized lambs cop a $2/kg penalty that would take them well below ruling mutton rates.

The JBS penalty was minus 50c for lambs over 30kg cwt.

This marks a significant change to the open-ended forward contracts that offered little deterrent to farmers to take lambs to big export weights and help create a better margin from expensive store lambs.

Yet just a couple of weeks out from Christmas and heavy export lambs are being chased by exporters as the supply pool of lambs over 27kg cwt falls.

The trend was noted by the National Livestock Reporting Service at Bendigo and Corowa prime markets this week.

At Bendigo, big shorn export lambs sold to $249, while at Corowa they reached $244 with both markets quoting dearer trends of 760-790c/kg for heavy lambs.

So, how to interpret the forward contact prices that appear out of whack.

Firstly, forward pricing is crystal-ball gazing and while many like to assume processors have the advantage in the form of supply/demand trends, they are essentially guesswork.

The industry is littered with examples of processors and farmers getting it badly wrong with forward deals.

On the issue of penalties, agent feedback suggests it is a move by exporters to deter farmers from taking lambs to excess sizes as happened in summer and autumn last year.

There were areas, such as Ballarat, pumping out lambs at truckload averages of 34 to 38kg cwt last season.

The problem is that while processors signalled a preference for lambs under 30kg cwt through their latest direct pricing, the message becomes distorted when buyers at saleyards chase big lambs out to sale-topping money.

Most agents expressed surprise January forward prices were lower than current rates.

But against this is the boom season, which seems to be encouraging farmers to hold stock.

The slaughter trend for lamb this spring has been subdued.

Maybe processors have factored in a bigger supply of shorn lambs next year and so haven’t gone out with deals above current auction rates.

But to play devil’s advocate, over-the-hook and forward pricing for lamb has had a tendency to track below the physical market this season, as the graph shows.

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