Lamb prices were literally off the charts last week. You know the market is doing extraordinary things when you have to increase the scale on the Y axis. The query we received over the weekend was: What do the current record values mean for prices in the spring and summer, when many drought-stricken producers will actually have lambs to sell again?
The anecdotal reports as to why we saw a lamb price spike last week were largely focused around rough seas. How do rough seas relate to lamb prices? Tasmania doesn’t kill all its own lambs, many get shipped to Victorian processors. The rough seas in Bass Straight last week put the Tasmanian trade on hold and forced processors to source lambs in the saleyards.
The Eastern States Trade Lamb Indicator (ESTLI) jumped 150¢, or 22%, in a week to break through the 1000¢/kg cwt for the first time in history. Figure 1 shows that the last time we saw prices near this mark was in July 2019, when the ESTLI hit 999¢/kg cwt.
Victoria was the epicentre of the price hike. The Vic Heavy Lamb Indicator finished the week at 1053¢/kg cwt, as the dry conditions mean only lambs who have eaten a lot of grain are able to make these weights.
We will find out this week if current prices are sustainable, but there could be at least some easing in values. The supply and price shock will likely see processing shifts cut, and demand weaken at that level. Whether the higher prices can be passed on in part to export and domestic consumers will determine where the market settles.
Looking back at the last time we had a significant spike, in 2019, we saw prices peak in early June, before steadying and having another run in mid-July. New season lambs are a long way off, so we could reasonably expect a similar pattern.
In late winter in 2019, the ESTLI lost track lower, losing close to 30% from August to December. The steady increase in new season supplies (Figure 2) caused the easing in price.
If nothing else, comparing current price and supply to 2019 illustrates the strength of demand for lamb.
What does it mean?
Looking forward, extreme winter lamb prices have historically encouraged spring lamb producers to get lambs off early. The problem is that the late autumn break will likely see a similar supply pattern to last year, possibly at even lower levels, and that kept prices close to winter peaks. Given that it looks unlikely that prices will move below 850¢/kg cwt as we move through the spring.
Key Points
- Lamb prices hit record highs last week as supply tightened suddenly.
- This week will tell us if the new highs are here to stay for the winter.
- Lamb supply is unlikely to improve until well into the spring, supporting prices.
Click on figure to expand
Click on figure to expand
Data sources: Mecardo; Meat and Livestock Australia
