Analysis: Weighing up lamb and cattle outcomes

There has been two very different price outcomes for cattle compared to lambs despite both sectors showing year-on-year supply increases of more than 20 per cent.

There has been two very different price outcomes for cattle compared to lambs despite both sectors showing year-on-year supply increases of more than 20 per cent.

It then becomes a question of interpretation: is the lamb market punching above its weight, or has the cattle market over-corrected to harsher-than-needed price lows.

On the available meat price and export data, which always runs weeks, if not months, behind the actual physical market, it is difficult to decipher.

Graphed on this page are the number of lambs included in the latest Eastern Trade Lamb price indicator (ESTLI) for the last week of February compared to the same time last year and the price change.

Also graphed is the number of cattle included in the latest Eastern Young Cattle indicator (EYCI) and its price performance compared to a year ago.

As the illustration shows, supply increases have been similar; lamb up 30 per cent and young cattle up 23 per cent based on data collected by the National Livestock Reporting Service.

Yet the young cattle price has collapsed by 56 per cent, sliding from 1123c/kg carcass weight in late February last year to close out this month at 722c/kg.

The lamb market has also declined, but not to the same extent, showing a fall of just 10 per cent, having gone from 812c/kg a year ago to currently sitting around 740c/kg carcass weight.

It means the price trend line of the two commodities has now inverted, with the trade lamb price moving up to bypass and now tracking above the EYCI.

There is little clarity from processors, with meat buyers continuing to claim that profit margins in both lamb and beef are still under pressure from the slow global economy and reduced spending from consumers amid talk of recessions.

A key component of the downfall in young cattle prices has been the change in sentiment and buying pressure from restockers.

In the latest EYCI calculation, just 33 per cent of the young steers and heifers sold back to the paddock, which left a high 56 per cent share for feedlots.

When the EYCI ran into record price territory above 1000c/kg, the share of cattle selling back to producers consistently sat higher than 45 per cent, occasionally going above 50 per cent when herd rebuilding was most intense.

Essentially, producers set the record price pace, and now the industry has reverted back to feedlots and processors having a greater influence on pricing levels.

It was summed up recently by Damian Thompson, AuctionsPlus, who was also trying to decipher market movements and put into context what is happening today.

“The dramatic change in seasonal conditions from 2019 to early 2020 led to an equally dramatic lift in prices,’’ he said.

“Looking back, this can be viewed as unusual pricing due to extraordinary circumstances that resulted in rampant restocking demand, exaggerating the natural cattle cycle.’’

Looking at the extremes, the EYCI lifted by 198c/kg cwt between January to March 2020, and then fell by 202c/kg in the space of three months from November 2022 to the end of January this year.

Playing devil’s advocate, Mr Thompson said if this massive spike and subsequent drop of around 200c/kg in the EYCI was removed, the trend line would have followed a much more ‘normal’ trajectory, and the peak would have been around 970c/kg carcass weight instead of the record 1170c/kg.

Conversely, if you remove the 200c/kg from the cattle EYCI graphed on this page, the decline in price would be halved down to 28 per cent instead of the substantial 56 per cent drop. Essentially it feeds into the argument that the cattle market did get overheated.

The lamb data is more difficult to follow. While there is all this talk of a ‘shortage of lamb’, kills are high, and supply is tracking at much higher levels than a year ago, the price decline has only been modest.

So far this season, the lamb market is hanging on better than many analysts had anticipated, although pressure could come in the autumn and winter as all those light lambs carried on after a disrupted spring return to the market.