Good time for COVID closures but prices still tested

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As we saw in the US, there is never a good time for Coronavirus to infiltrate meat works. This is especially true for livestock producers, who bore the brunt of the processing slowdown in the US through lower prices. At the start of this week, two Victorian Lamb processors are shut due to COVID, with the only good thing being there are not a lot of lambs about.

As outlined in Friday’s comment, last week lamb prices found some strength on the back of tighter supply. It is that time of year in Victoria. 

Figure 1 shows that while Victorian lamb slaughter has been bouncing along at low levels since April, seasonality shows it might dip even further as we move into August. Last year extreme prices and maintenance closures saw the Victorian kill drop to low normally reserved to late December and early January.

The story is similar for lamb yardings. The lower prices recently saw Victorian lamb yardings move under 20,000 head for the first time since August last week (Figure 2).  There is usually little variation in Victorian lamb yardings in August, as old season lambs are largely finished, and new season supplies don’t ramp up until mid-September.

With lamb slaughter so low, there is still capacity at other processors to take lambs which can’t be killed due to COVID shutdowns.  Coles process their lambs at Colac, and they will likely be killed somewhere else and not build as a backlog to be slaughtered later.

When there were COVID cases at JBS earlier in July, east coast lamb slaughter didn’t really change, as other processors picked up the slack. If it were November or December, the situation would be very different, but at the moment there are few lambs that have to go, and there is plenty of spare slaughter capacity.

In terms of price, the last two weeks has already seen a large spread open up between NSW and Victorian lambs. In NSW trade lamb prices have rallied, while in Victoria there has only been a small tick up (Figure 3).  Yesterday both NSW and Victorian lamb prices fell, with Bendigo afflicted by a lack of buyers, and price falls of up to $30 per head quoted.

Quality has a fair bit to do with the price spread, with Victoria yardings largely made up of the last of old season lambs, and better lambs selling in NSW.  However, there might also be an impact from the backlog caused by the JBS shutdown earlier in the month.

What does it mean?

COVID-19 infections are not good for prices, as we saw yesterday, but with current supply very low its unlikely lamb and sheep prices will crash in the coming weeks.  It will, however, stifle any rallies that were going to occur due to a supply lull.  Additionally, we might see a small building in supplies on-farm as lambs that were booked wait for space and growers hold stock back due to uncertainty.

The real issues in terms of price will come if COVID-19 infections persist into the spring, when new season lamb supplies start to flow. Processor closures will then have heavy impacts on price, not to mention the lack of foodservice demand which is still afflicting the market.

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Key Points

  • COVID-19 has seen further temporary processor closures in Victoria this week.
  • Lamb supplies in Victoria are at seasonal lows but closures have impacted prices and will continue to stifle rallies.
  • If COVID infections persist into spring, there could be heavy impacts on lamb pricing.

Click on graph to expand

Click on graph to expand

Click on graph to expand

Data sources: MLA, Mecardo

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