Conditions have varied greatly across the East Coast and not all areas are benefitting from recent rain but for those that have it, excess feed is a good problem to have. The destocking that took place in the autumn has given way to a reasonable spring for many areas, with grass now growing quicker than stock can eat it. It’s about this time of year we look at trading merino lambs, and as it turns out it’s pretty timely.
With wool prices in the doldrums, merinos have got that aura around them
again. The aura is not a good one, but for those looking for a trading
opportunity, it might well be. Figure 1
shows the discount of NSW and Victorian Merino Lamb Indicators to the Eastern
States Trade Lamb Indicator (ESTLI).
The lines in Figure 1 are four-week rolling averages, as the weekly data
is far too messy. This is saleyard data,
but we know that restockers will often compete with processors in saleyards for
merino lambs. In NSW, merino lambs have
been trading at almost double the normal discount to the ESTLI. In Victoria,
the discount is close to 40%, around 4 times the normal level. It seems merinos are very much on the nose in
the south.
In NSW saleyards, merino lambs made 590¢/kg cwt, or $122/head last
week. In Victoria, the price was 491¢/kg,
or $87/head.
Looking for new season lambs, notably on AuctionsPlus, sales have been
relatively few, but there are some good examples. April drop merino wether lambs have been
making between 200¢ and 300¢/kg lwt. A
34kg merino wether lamb will cost around $90/head.
Figure 2 shows the ‘back of the envelope’ workings on how trading merino
wether lambs might work out this year.
The recent bump in the wool price is helpful, and obviously the finer
the wool the better the price, but all that needs to be factored into your own
working.
In terms of a trade for using excess grass, merino wethers look pretty
good. There are costs to come out of it,
but a gross margin of $75/head, under a scenario of weaker wool and lamb prices
seems reasonable.
Note
that this trade calculation does not allow for any feed, freight, shearing or administrative
costs; these will vary between enterprises and should be calculated on a
case-by-case basis when considering any trade.
What does it mean?
The problem with all trades at this time of year is the question of whether the stock will be finished on grass, as feeding stock ramps up costs considerably. This needs to be accounted for and when looking to trade all options should be taken into account. For some, this will be meat breed lambs versus merino, or even versus cattle. Without looking too closely at other trades, on a DSE basis, merino wether lambs look like the pick at the moment.
Have any questions or comments?
Key Points
- Spring grass growth brings with it trading opportunities.
- Merino lambs are relatively cheap compared to trade lambs.
- Trading merino wether lambs looks like it could be a profitable enterprise this year.
Click on figure to expand
Click on figure to expand
Data sources: MLA, ABS, AWEX, Mecardo