First shot at pricing spring lamb

With lamb supply tightening significantly over winter, and questions over how many lambs were marked this year, processors looking to fill orders and keep chains running in the spring are understandably nervous.

There hasn’t been a rush of forward contracts announced for lambs, but there were some released from a Victorian processor a couple of weeks ago. Forward prices were pegged close to the lamb prices of the time, at 1200¢/kg cwt out to late September.

Forward prices drop off sharply, down 120¢, to $1,080¢/kg cwt for the last week of September, and then fall to $1,020¢ for late October and early December (Figure 1). Since the forwards were released, the trade lamb market has already lost around 150–200¢, so the September prices may not still be available.

Historical price seasonality is often a good indicator of how prices react over the course of the year. The five-year average has the Eastern States Trade Lamb Indicator (ESTLI) falling 7% from the peak in July to the average low point in late September before recovering around half of the fall by November. The ESTLI has declined by 8% over the last two weeks.

November forward contracts are pegged 15% lower than September, and 10% lower than the current ESTLI. The forward prices for November are still 27% higher than last year, and stronger than at any time before this winter.

Sellers of any commodity have a hard time taking a much lower price in the future, which is part of the reason livestock futures rarely gain any traction.

Looking at Figure 1, we can see the forward price for November is the same as the price in June, when East Coast lamb slaughter was around 400,000 head per week. Figure 2 shows it took until late November last year to move higher than 440,000 head. It’s hard to see that there will be more lambs around this year than last.