All eyes on price trend as lamb margins tighten
Major buyers are keeping their hands in their pockets ahead of Easter, as store lamb prices push higher against slaughter returns.
LAMB finishing margins were tested this time last year, and prices will be keenly watched in coming weeks to see if the Easter break can trigger a needed upward price trend heading towards winter.
So far, the rain this autumn has not translated into any significant lamb shortage or price surge.
Heavy lambs, in particular, have been caught in a web of abundant supplies that have filled processing space and allowed major companies to step back from the auction system.
It was a trend that was still evident this week, with companies such as JBS Swift, ALC and the major supermarkets showing little interest in chasing numbers at Bendigo on Monday, just four days shy of Easter and a spate of market closures for public holidays.
It means most heavy lambs have stayed capped in a dollar per head range of $200 to $225, and the super heavies (over 30kg cwt) from $230 to $265.
Yes, there have been some higher sales, but the sheer size of these lambs has to be appreciated. A case in point was the top price at Bendigo this week of $278.
Auctioneer Chris Nevins, FP Nevins & Co, said the lambs had been weighed on farm and averaged more than 90kg liveweight. Do the maths on this using yardstick carcass yields and they work out at less than 700c/kg cwt.
The illustration shows how lamb margins have tightened in the past 12 months as store lamb prices have pushed higher against slaughter returns.
The graphic compares the average price for trade lambs, 24-26kg cwt, sold at the weekly Wagga Wagga market in NSW, which is the country’s largest selling centre and arguably the dearest.
The coloured bars are the average prices per head paid by restockers on AuctionsPlus for young store lambs, broken down by season (summer, autumn, winter and spring).
To interrupt the data, you have to look at the lambs going to the paddock in the season before they are sold, such as stores bought in the summer and autumn to be fed for the winter slaughter trade.
The easiest example to follow is to look at the highest bar for store lambs, which was $161 a head to the paddock in the autumn of 2020. Then go across to the trend line for heavy trade lambs sold at Wagga Wagga, which hit a low of $142 average in late August.
Obviously this was a tough time for farmers who had invested big in store lambs only to have winter price premiums fail to materialise as the market fell away. It needs to be acknowledged that this period coincided with the start of the COVID-19 pandemic and all the disruptions that went with it.
However, the same pressures of pricey store lambs compared to a dull market for finished slaughter lambs is still at play today.
The official price average for restocking lambs sold at NLRS monitored saleyards was 925c/kg cwt at the start of this week, well ahead of ruling rates for finished prime lambs.
Or to go back to dollars per head scenarios, store lambs were dearer at Bendigo this week with decent-framed lambs averaging $166 to the paddock. But heavy slaughter lambs were cheaper, an average run of 24-26kg crossbreds averaging $200 on NLRS data.
It’s a skinny gross margin of $34 on paper.
These facts were not glossed over by NSW agent Adam Boyd, of Wagga Regional Livestock, who bought more than 1200 store lambs at Bendigo this week, the crossbred run costing $170.
“Store lambs are selling well in comparison to finished lambs. The rain has had an impact as people were able to finish and sell their own lambs and are now looking for more to go onto crops,’’ he said.
“ It is probably hard to see (store lamb) prices going above what I was having to pay today, especially after people got caught out last year so are a bit gun-shy about going to $180 and $190,’’ he said.
Like many others in the industry, he said he was hopeful the lamb market would improve once the current backlog of heavy kill lambs was cleared. The optimists believe it could happen post-Easter, while others have a more conservative outlook of May.
Mr Boyd said aside from optimism the market would have to rally on a shortage of supply this winter, booming cheap feed would also help margins.
He said early sown crop that had already received two big soakings in NSW were already flourishing, to the point they could be grazed now.
“Most of the lambs we have bought this week (he was also buying at Ballarat) will go onto winter crops that are up and in full flight, and the biggest benefit we have right now is our low feed cost,” Mr Boyd said.
While there are some forward price offers out there for lambs delivered May onwards, Mr Boyd said they would follow the auction system.
At 850c/kg a 26kg lamb is worth $221 before a skin; at 880c its $230 and at 900c its $234.
Some agents believe farmers need 880c for a reasonable outcome from a costly store lamb this season, adding that a turn-off weight closer to 30kg could also be needed in certain cases.
The Weekly Times understands forward price contracts are pinned at around 840c for heavy lambs at this stage, while a major domestic company has reportedly just come out with 850c for quality trade lambs for May.
Steps in the right direction for farmers, but not as high as many are hoping the market will go.
A possible pressure point for the industry is the boom season in the north boosting numbers over the winter period – a scenario Mr Boyd said they had considered.
Already, early-drop lambs are on the ground in NSW, and in the midst of such a great season, the possibility of them making good early suckers for slaughter is high.
“A lot of people are halfway through lambing and with crops ahead of them those lambs certainly don’t look like getting a setback at all,” Mr Boyd said. “We could easily see suckers as early as we’ve ever had them (out of the north).’’
Price performance this winter will ultimately come down to supply versus demand, remembering that many big processors use this time to shut for maintenance or cut shifts.
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