Margins tight in topsy-turvy lamb season
The traditional selling season has been turned on its head with modest gains in spring after prices collapsed over winter.
MORE new season lambs are being sold early this season.
There is more weight in these young lambs — and less store lambs are going to the paddock out of the auction system.
These three points sum up the key trends to emerge out of the lamb market from August, the month that traditionally kicks off the sucker selling season across Eastern Australia.
Price-wise it has been a distorted opening to spring, with prices collapsing during late winter before showing some modest improvements in the first weeks of September — the opposite to normal patterns.
The raw data presents something of a conundrum for farmers who operate a trading system — buying young lambs to shear and grow-out.
It stems from weight and dollar per head averages for lambs, raising questions as to how traders can carve out a decent margin on current market performance.
Consider this; during August the average dollar per head return across 164,533 crossbred sucker lambs sold to processors was $157.
This figure is calculated from saleyards covered by the National Livestock Reporting Service in NSW and Victoria.
The breakdown by state was: 144,970 young lambs sold in NSW averaged $156.90; and 19,583 young lambs in Victoria averaged $160.20.
The average weight for those lambs was 23kg carcass weight, based on NLRS evaluations. Allowing for a general $2 skin, it works out to about 670c/kg. Compare this to $130 to $145 being paid for store lambs on AuctionsPlus, and also in the saleyard system in the past week.
Simple maths of $157 minus a buy-in cost of $142. It doesn’t leave much room for profit, at least on paper.
Admittedly the market has improved in the past 10 days and good processing lambs in the 24-28kg cwt range lifted to between $165 and $180.
But the market is being driven by domestic rather than export demand, and price signals for heavy to extra heavy slaughter lambs remain subdued and are selling at lower carcass rates compared to nice tradeweights.
Bottom line, the market is showing little incentive for producers to add weight and take lambs above 28kg cwt and into big export categories.
Rodwells Horsham livestock agent Wayne Driscoll was one of the few agents to attend several lamb markets in the past week in the search for suitable store lambs.
He was blunt in his assessment of trading conditions.
“For the average farmer with feed in a paddock and wanting to speculate on a few hundred store lambs, the market is clearly too dear, probably by around $20,’’ he said.
“We have taken a forward position as a bit of cover, and are tweaking a few things to make it work — but even then it is difficult and we are not looking at the big margins like recent (drought years when store lambs were plentiful and under-valued).’’
Mr Driscoll paid an average of $141 for store lambs at Bendigo for pens estimated between 18-20kg cwt.
He said the plan was to finish the tops for a November delivery at an agreed price with an exporter, with the balance carried over for the autumn market.
By taking two cuts and getting more lambs to weight over a longer period, from cheaper paddock feed thanks to the good season, they could achieve a positive result.
But he did note that the deal they had locked into was across reasonable numbers of lambs, which was needed in the current trading environment.
The difficulty around purchasing store lambs has been highlighted by comments from other agents in recent weeks.
Some feedback has been that farmers had “put their cue back in the rack” after copping some pretty disastrous results this winter.
Export prices plummeted amid the COVID-19 turmoil, and the uncertainty surrounding the lamb market meant producers were putting a price cap of $100 to $120 on store lambs, which at the moment was not achievable.
Despite the big flush of sucker lambs sold in August, significantly less numbers have gone back to the paddock from the auction system.
Last month the turn-off of young lambs out of NSW was running 53 per cent higher than a year ago, which admittedly was a drought period.
But even on the five year average numbers are still up 25 per cent.
The other factor affecting store lamb buying is the sheer weight and condition of these early sucker lambs, with the majority above 22kg cwt and in fat condition.
The following NLRS data is a breakdown by weight of young lambs sold in the month of August: 15,984 sucker lambs sized from 26-30kg cwt (compared to just 4680 last year but still three times higher than in 2017); 33,042 suckers sized from 24-26kg cwt — three times the volume of the past three seasons; and 71,916 suckers from 22-24kg for a significant increase on the past two years.
Against this has been a noticeable decline in the supply of lighter weight young lambs. In August less than 10,000 sucker lambs were reported below 20kg cwt by the NLRS. As a result, sales to the paddock have been low.
The indicator figure from NLRS data was 7530 crossbred sucker lambs sold to restockers last month, to be well down on previous years.
To spin this around and be an optimist, the low number of store lambs could suggest supply issues for shorn lamb down the track.
At the very least it is something to watch over coming weeks.
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