Restockers at right price for potential reward

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Producers following the lamb market - and especially those looking to sell into it - would be hard pressed to find much of a silver lining after last week. As was detailed in Friday’s sheep market comment, prices plummeted despite supply being steady and even dropping in some categories. But with plenty of rain around and forecasts for another La Niña looking promising, those willing to take a punt on longer term returns could see an opportunity to trade.

Seasonally, we are at the point in the year where the quality of last years’ lambs that are still being sold is diminishing, and new season lambs are starting to enter the market in certain areas. However, the late start and subsequent long wet winter has pushed the true start to suckers back into September. Larger offerings of lesser quality lambs are therefore playing a role in the downward price trend. On Friday, the eastern states restocker lamb indicator closed at 556¢/kg, which was more than 35¢/kg lower week-on-week, and 450¢/kg below the same time the previous year.

Looking at the restocker price nationally, it sat at 592¢/kg across last week. This was 23% below the five-year average for the same week, and a whopping 42% back year-on-year. The national price indicator for restockers averaged 593¢/kg for the month of August, compared to 932¢/kg for August last year. This was a monthly average differential of 37% year-on-year for restockers. If we do the same equation for the trade lamb price, it has only averaged 23% lower for the month of August compared to 2021. Heavy lambs are similar, being back 24% year-on-year for the month.

If we take a look back a bit further, both the five and 10 year averages indicate August is as cheap as restocker lambs are going to get for the year, and at the moment they are particularly cheap. In that same vein, trade lamb prices are historically towards the top end of where they will track for the year. Currently, trade prices are also back substantially, with the Eastern States Trade Lamb Indicator finishing Friday 28% lower year on year, having lost nearly 9% in the week.

What does it mean?

As the flock rebuild comes more to fruition, and producers potentially become more hesitant to hold over lambs like they did last year in case the prices don’t pan out for them again, restocker supply isn’t likely to fall, and that alongside current volatility in finished lamb prices will put the brakes on too much upside on restocker demand one would think. Strong export demand and room for lamb slaughter to increase (2021-22 slaughter was on par with 2020-21) on the other hand will help support finished lamb prices in the longer term.

If you’ve got wet paddocks that will be full of grass in the spring, restocker lambs might be a trade worth considering.

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Key Points

  • The National Restocker Lamb Indicator has dipped below 600¢/kg throughout August, sitting at 2016 price levels
  • Restocker lambs have experienced a 20% drop since the start of the year, compared to the 16% fall of the National Trade Lamb Indicator.
  • Despite falling returns across the board, those with feed to see them through the summer could find opportunity in current restocker market.

Click on figure to expand

Click on figure to expand

Data sources:  MLA, Mecardo

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