The counter-seasonal strength in lamb markets has been perplexing. Normally at this time of year lamb prices are on the decline as supplies improve, but last week they hit a new record. Here we go looking for the source of the out of season price support.
We know that price movements are driven by either supply or demand, or both. Normally at this time of year lamb and sheep supply is on the rise, and with demand steady, prices fall. This year we are seeing relatively steady supply, when stronger supply was expected. But we might also be seeing stronger demand, especially in export markets.
Figure 1 shows slaughter has fallen back in the last fortnight, and it appears to be to do with supply rather than processing restrictions. Lamb slaughter last week was only back at the five-year average, but it has fallen 9% in a fortnight. The slaughter chart almost looks like September supply came a month early. The decline in supply was unexpected, and with few lambs booked forward for this time of year, processors have been forced to pay up at the yards.
The next question is how can processors afford what are record sucker prices. Some data out of export markets suggests increased demand might be playing a part.
The US is one of our biggest lamb markets, and their domestic supplies are on the decline, and red meat prices are on the rise. Figure 2 shows that the high value lamb racks exported to the US have completed their recovery, and in US terms are now sitting at pre-Covid 2019 levels.
Domestically in the US, lambs at saleyards are making north of 1700ȼ/kg cwt in our terms, or $350/head for a 20kg cwt lamb. In US terms, their lambs are almost double this time last year, and 28% above the previous high, set in May 2017.
Extreme domestic lamb prices in the US makes Australian lamb relatively cheap, increasing demand which is flowing through to saleyard prices.
What does it mean?
Stronger export demand for limited supply is good news for lamb producers, as it will encourage processors to lift kill rates to soak up spring lamb supplies, as there will be money in it. As previously outlined, processor capacity might be the issue, but at the moment strong demand clashing with tighter supply is pushing prices to new records.
Key Points
- Lamb prices are normally on the decline at this time of year, not reaching new records.
- Supply tightened unexpectedly in the last fortnight, and export demand has lifted.
- Strong demand from the US is good for lamb markets in spring if processing capacity can cope.
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Data sources: USDA, Steiner, MLA
