Grainfield

The drop in sheep meat prices in 2023 came as an unwelcome shock after the better part of a decade of rising prices. This article takes a quick look at past price volatility in sheep meat prices to put 2023 into some historical context.

A common way of looking at price volatility is to calculate and compare prices/price movement through standard deviation. A standard deviation on either side of the average captures two-thirds of the price/price movement for the specified period under study.

Figure 1 looks at the standard deviation of the yearly change in monthly mutton and lamb prices (adjusted for inflation) by decade from the 1960s onwards. A couple of points stand out. Firstly, mutton prices are inherently more volatile than lamb prices. As a rule, mutton prices tend to be the most volatile of extensively produced farm commodities in Australia. Secondly, the price volatility in mutton since 2010 has been well below the levels of the 1970s through the 1990s when the sheep flock twice went through major reductions from high levels.

Standard deviations are all very well, but what about the collapse in prices last year, readers are thinking. Figure 2 shows the deflated mutton price (line) from 1970 onwards, along with the rolling variation in price from the highest level in the preceding five years (bars). Prices fell early in the 1970s, recovered in 1973 and then collapsed again in the mid-1970s. The early 1990s, amidst the collapse of the Reserve Price Scheme, stand out as the worst fall in price (around 95% on the highest level of the preceding five years).

By September last year, mutton was down 83% on the highest level of the preceding five years. Falls in 2006, 1990, 1985, 1982 and 1974-75 were of a similar magnitude (and 2012 was not far off), which puts the frequency of such severe falls at once a decade on average. From this perspective, the fall in price seen in 2023 was not unusual.

Figure 3 repeats the exercise for a NSW saleyard trade lamb price series. At its extreme in September, the lamb price was down 65% on the highest level of the preceding five years. This was on par with 1990, the early 1980s, the mid and early 1970s. Lamb, too, has seen price falls similar to this magnitude at least once a decade. The extended period of rising prices from 2013 to 2021 was unusual, probably leading to those dangerous five words “this time it is different” being used.

Last October, Mecardo looked at the historical patterns of recovery in the lamb and mutton from severe downturns (read more here). The expectation was that lamb prices would recover far more quickly than mutton, with this historic pattern playing out as lamb has quickly recovered half of its fall but mutton only recovered 25% of its fall so far.

What does it mean?

A reader’s question about whether recent mutton price movements were more volatile than in the past prompted this article. The answer is clear price falls in sheepmeat in 2023 were similar to earlier patterns during the past half a century. Price volatility during the past 10-15 years has been lower than in earlier decades, which made the 2023 downturn even more of a surprise.

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Key Points

  • Mutton prices are inherently more volatile than lamb prices.
  • The price collapses seen in 2023 for both mutton and lamb have plenty of historical precedents.
  • Price recoveries since last spring are also following past patterns, with lamb making a faster recovery than mutton.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: NSW Dept Ag, ALMC, MLA, RBA, ICS, Mecardo

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