How direct selling is affecting saleyard mutton prices

A dry season and forward price deals from abattoirs appear to be putting some hurdles in a mutton market where prices have weakened recently.

The season and forward price deals appear to be putting some hurdles in front of the mutton market after a promising start to winter.

Sheep prices at saleyards were weaker in early trading this week, data from the National Livestock Reporting Service showing the national indicator gave back nearly as much as it had gained in the past week.

It was quoted as 18c/kg cheaper on Monday down to an average 357c/kg carcass weight, and this figure looks under threat considering the quote from Dubbo in NSW, which had the biggest offering of nearly 17,000 sheep, was 290c/kg to 340c/kg.

A couple of issues are at play, and one highlights how direct sales can shift the momentum of the market.

Last week key mutton buyer Fletchers International from Dubbo reportedly put out a price offer of 440c/kg for heavy sheep (24-36kg carcass weight) delivered to its plant; 400c/kg for extra heavies over 36kg; and also opened up its grid to take 22-24kg trade sheep at 420c/kg; and 380c/kg for lighter sheep weighing 20-22kg.

Agents told The Weekly Times the price offer was only open for a short-term, suggesting it was heavily subscribed. And leading on from this Fletchers did not operate at this week’s Bendigo sale which was quoted as cheaper for sheep. Nor did they purchase at the Griffith prime sale last Friday.

Sheep prices were 12c/kg cheaper on Monday.

Fletchers is a key driver of heavy sheep and lamb prices in the southern auction system, and when this company steps back the market invariably seems to lose momentum.

It highlights the broader issue of how increased direct selling to abattoirs can impact the level of competition at saleyards and can dull the tone of the industry and arguably put a cap on price gains.

The following is an observation from a producer who used to be a noted supplier of extra heavy lambs into the Ballarat saleyards. They used to purchase trade lambs to feed on and said they would be competing against supermarkets and domestic processors as well as other restockers for these store lambs. But when they went to sell the finished 30kg-plus lambs there was often only a couple of exporters bidding on them.

“You can’t be competing against nine other buyers when trying to buy store lambs, and then only have two or three buyers put in a couple of bids for the finished product – it doesn’t work,” was his take on how the lamb market has developed in recent years.

This family, who declined to be named, now focuses on grain.

It is a thought provoking comment, and when you sit back and analyse the market it is now rare to have all the major export lamb buyers – Thomas Foods International, JBS, Fletchers, Australian Lamb Company, Cedar, Southern Meats, Junee – line-up and compete at a prime market.

It didn’t happen across the autumn when heavy lamb prices proved underwhelming and didn’t gain the traction most producers and agents had anticipated. It is because most major processors now direct or forward buy a substantial percentage of their kill and then move in and out of the auction system to just top up.

Even at Bendigo this week competition for export lambs was limited to a couple of buyers, while on light and store lambs there was multiple processing and restocking orders.

You can’t blame producers for favouring direct selling at a known price and the risk management advantages it offers. But there is ramifications to it. After the Bendigo market this week some agents expressed relief they had “taken space” at 440c/kg for heavy sheep to Fletchers after the sheep sale was cheaper. But it could be argued that the reason the deal looked so good was because it appeared to have taken this key buyer out of the system and weakened the physical market.

The impact of the industry as a whole chasing slightly better over-the-hooks money was flagged as an issue on Tuesday this week after a subdued sheep and lamb market at Deniliquin.

“We’ve all fallen into the trap of (processors) putting 20c to 30c more out (in front of the market) and we put in a heap of lambs or sheep and then this happens (prices fall). I’m certainly guilty of it,” said a frustrated auctioneer.

Looking forward, the other issue facing the sheep market is the poor season, particularly across the south west which is a major hub for livestock production.

Agents at Naracoorte in South Australia last week told The Weekly Times they anticipated an early flush of sheep due to farmers being forced to early wean lambs and sell old ewes due to the lack of feed.

“I think we will sell more sheep this August than we will in October and November (the traditional spring flush) due to the way the season is going,” predicted one agent.

August is now less than eight weeks away, and with maintenance shutdowns also coming up for major abattoirs, the sheep market could be facing some hurdles.