Understanding varied lamb price forecasting

When livestock markets seem to be influenced more and more by confidence and the mental state of producers, are price predictions helpful or not?

Pick a number between $6/kg and $10/kg and that could possibly put you in the ballpark of lamb pricing for the next 12-months and even beyond.

It is a smart-alec line aimed at highlighting a few issues – the value of some price forecasting; the difficulty in accurately predicting market price movements; and the importance of having an understanding of the factors/seasonal scenarios behind the figures being bandied about.

Because in this era of technology and instant accessibility to a lot of market information, there is a myriad of analysis and predictions put out there for farmers to digest. And when livestock markets seem to be influenced more and more by confidence and the mental state of producers, price predictions can have a powerful negative or positive effect.

The issue was bought to The Weekly Times’ attention earlier this year by NSW farmer and keen market watcher Tom Carroll from Deniliquin.

Known as ‘TomCat’ and a regular attendee of sheep and lamb sales, he was frustrated with some coverage in the media suggesting meat processors could be paying $11/kg carcass weight for trade lambs this winter.

At $11/kg a 26kg lamb would gross $286.

Price predictions are notoriously hard to measure. Picture: Zoe Phillips

Episode3 director and market analyst Matt Dalgleish has been quoted as saying trade lamb prices could go as high as $11/kg if the season was favourable and a late El Nino event resulted in an early autumn break.

“I say it won’t happen,” Mr Carroll said, backing this stance with a $10,000 challenge.

His call was that he would put up $10,000 to be matched by Episode3 – the money going to charity. If any of the big lamb processors put out an $11/kg deal in the winter Mr Caroll would donate $10,000 to whatever charity Episode3 chose; if prices didn’t reach that record level Episode3 would have to stump up $10,000 to Mr Carroll’s charity.

“These price predictions put out a false sense of the market, and they need to be backed-up,” Mr Carroll said.

Mr Dalgleish said while a novel idea, he rejected it on the basis his comments around $11/kg had been made with some particular seasonal triggers that would have to occur.

“I think the article in question refers to the higher potential peak at $11 if we get a return to an above average rain event, so that was the caveat on that particular comment, and it appears the article wasn’t read completely or the headline of $11/kg was taken out of context,” Mr Dalgleish said.

Mr Dalgleish was prepared to share his latest analysis on lamb prices, which is called the “NTLI (national trade lamb indicator) Fair Value Model – annual average.”

The price figures the model came up with, based on average rainfall conditions, were:

2025: 625c/kg to 875c/kg carcass weight; and

2026: 695c/kg to 970c/kg.

Mr Dalgleish said these prices were not forward price predictions, but rather the price band the lamb market could perform in based on a range of factors.

It comes back to understanding what the analysis is actually about.

As to how the ‘Fair Value Model’ is calculated Mr Dalgleish said: “Several demand and supply metrics of both the actual historic data and the forward estimates – such as slaughter and export volumes (estimates from Meat and Livestock Australia), GDP per capita in key export destinations (IMF estimates), AUD/USD level (Reuters industry forecasts), rainfall – cannot be estimated accurately beyond a few weeks/months so I use the average conditions and then comment what may be possible if we get a wetter or drier event, which is a bit more speculative.”

Asked how farmers should interrupt the price modelling, and if there was value in a nearly 300c/kg price range as a model, he said:

“Given there is usually a ‘normal’ 15-20 per cent price variance around an annual average lamb price I don’t think a 300 cent range is problematic. For example, assume an average 700c/kg price for trade lambs, and referring back to a 20 per cent peak or trough from this level and it equates to 140c/kg. It means the trough of the market could be 560c/kg and the peak 840c/kg giving a range of 280c/kg from the average price of 700c/kg over the season. So the fair value range approximately represents how much the market can swing in a year. Levels beyond this range indicate a market that is either under or over valued beyond normal. I think this is useful for producers.”

The next price forecast to come in will be from MLA as part of its industry updates released each February.

MLA asks several market analysts to put in their price forecasts for lamb anonymously and then publish the range and average price scenario.

For interest last year the forecast was for the heavy slaughter lamb price indicator to reach an average of 763c/kg by June 2024. The highest forecast was 877c/kg and the lowest was 714c/kg.

History now shows the average saleyard price for heavy lambs sold in May last year was 680c/kg and in June it was 716c/kg. The peak in the market last year wasn’t winter but at Christmas time due to how the season played out.

Forecasting livestock prices is notoriously difficult and subject to a lot of factors lining-up for it to be accurate. The best rule of thumb is the commonsense approach of working on a realistic middle-ground, and treating the overly buoyant outlooks with caution and if they eventuate it is a bonus.