Are lamb market prices dictated by demand or supply?
Is supply or demand saving the lamb market from its usual price slide? The answer to this important question will go a long way to determining the price outlook as Christmas approaches.
IS SUPPLY or demand saving the lamb and mutton market from its usual late September price slide?
It is an important question as the answer goes a long way to determining the outlook for prices leading into Christmas.
If it is supply, the lamb market could still come under some reasonable pressure as numbers build when southern saleyards come on line, with the October to December period traditionally the biggest months for sucker sales in Victoria.
If it is demand, then the market could fare better than anticipated if the current level of export and domestic buying continues in the weeks ahead.
The problem is there is no clear answer, with hard data in the form of production or export figures not telling enough to sway an argument either way.
Lamb slaughter has actually ticked up this month, and for the first time this year the national lamb kill is tracking higher than past seasons.
The latest available figures had lamb production at 347,348 head for the seven day period from September 4 to 11, which is 11pc higher than the previous week and 6pc greater than a year ago.
Yet at the same time, lamb prices have improved and gone against the general theory of higher production equating to softer prices.
Which is why prices traditionally peak in winter before declining into spring, the opposite of what is happening this year.
On the saleyard supply front, the biggest auction centres have had a fairly slow opening to the spring.
Based on data collected by the National Livestock Reporting Service lambs and sheep sold have numbered:
240,200 through the Wagga Wagga market in the Riverina in the past six weeks, about 42,000 head less than the same period in 2019 and 2018.
125,900 at Bendigo, which is 12,000 more than last year but well down on the 190,000 plus that were auctioned through the centre in the same six week period in 2018.
62,106 at Ballarat, down on the 70,727 head last year and the 82,969 in the same six week period in August and September 2018.
Numbers at other saleyards such as Corowa in southern NSW and Horsham are also tracking behind usual levels.
To sum up, the market is throwing up the mixed trends of smaller saleyard pennings, more lambs being slaughtered, yet firming prices for lamb and sheep heading into October.
To put it bluntly, markets are not following the patterns of previous seasons and are exceptionally difficult to read.
There is a lot of speculation about what is happening at present, and theories include:
THE boom spring season is delaying the usual flow of lambs, with farmers comfortable to drip-sell thanks to good paddock feed ahead of them.
FARMERS were spooked by the lack of export demand for heavy lambs that was evident in late winter, and with the message that processors didn’t want weight in suckers they pushed through some early young lambs, leading to a lull in supply after an initial sell- off in August;
COVID-19 disruptions caused fewer lambs to be forward-sold or booked in direct, which has forced some export processors to rely more on the auction system for supply at present, causing prices to rise;
PROCESSORS had anticipated a big flush of early prime lambs thanks to the good season and with prices struggling in late winter were prepared to roll with the auction system, but consistent rain, particularly across NSW, meant they have been caught short for numbers.
THE age-old argument about who know how many lambs or sheep are out there, and the supply pool is tighter than industry realises, which is supporting prices.
Showing how unusual the present situation is, there have only been two other years in the past 10 where the national lamb price in September has been higher than August, according to saleyard data compiled by the National Livestock Reporting Service.
Last month, heavy lambs (22kg plus) averaged 628c/kg cwt in the auction system.
So far this month they are tracking at an average of 648c and firming.
The last time this happened was in 2017, when the market improved from 594c in August to an average of 604c/kg cwt in September.
Interestingly, 2017 was also a wet year, with above- average rainfall after a mild winter.
The only other season prices have risen from late winter into spring was in 2011, when they shifted from 467c in August to 488c/kg cwt in September.
Looking further into the 2017 and 2011 years, the positive for producers was that lamb prices maintained a solid to higher price pace right up to Christmas.
In 2017 the average tradeweight lamb price in November was 612c/kg and a higher 652c/kg in December.
So if history repeats itself, the lamb market could enjoy a positive run into Christmas.
The other price pattern The Weekly Times looked at was the average price change for lamb between the months of August to December.
Some big discounting was evident in the drought years of 2018 and 2019, when prices fell from highs of 850c/kg cwt in late winter to less than 700c by the summer.
But if these drought statistics are removed, the average price fluctuation in the other eight years from 2010 onwards was a much milder 60c/kg during the August to December period.
If this formula is applied to current prices with trade lambs sitting at 716c and heavies at 686c/kg, it suggests the market could hold a base of 620c to 650c/kg moving into summer.
However, there is always the pessimist view in the market place and at present this centres on the possibility of lamb numbers in the northern areas clashing with the onset of the southern sucker run, causing a big price correction.
Some people are touting the next fortnight to a month as presenting the best window of opportunity to sell young lambs before the market starts to correct under the weight of supply.
The other dynamic is demand, and information on this side of the equation is also hazy due to the COVID-19 pandemic and effects on the domestic and international markets.
Feedback from buyers is that trading conditions remain difficult.
But export sales during August did improve, with 19,239 tonnes shipped overseas, a 4pc lift on July and 9pc higher than a year ago, according to Meat and Livestock Australia.
Exporters have been the drivers of rising lamb prices in the past fortnight.
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