A few weeks ago, we looked the discount heavy lambs are currently subject to compared to trade lambs. A query we had this week was whether there is historical data suggesting this discount will disappear in the spring. For this we must go back through the data.
Firstly, it is unusual to see heavy lambs discounted to trade lambs, and even more unusual for the discount to last beyond a couple of weeks. Figure 1 shows trade lambs moved ahead of heavy lambs in March, with the discount widening as we moved through winter.
The theory behind the widening discount, without anything in the way of evidence, apart from the anecdotal variety, is the rise of lamb lot feeding. With grain relatively cheap, keeping the cost of gain well below the value of extra kilograms, there has been incentive for lamb lot feeders to keep putting weight on lambs rather than sell them as trade lambs.
Add to this the move of lamb feeders into buying at heavier weights, competing with trade lamb processors, and you see the price of trade lambs move ahead of heavy lambs.
Figure 2 shows that the current discount of heavy lambs is not only the largest in the last 10 years, but also the most sustained. Winter and spring of 2020 was the last time we saw a discount near the current one, it lasted two months.
There has been sustained periods of heavy lambs being at a premium to trade lambs. This is usually due to higher feed prices and dry weather making it more expensive to put kilograms on lambs, than was being returned. In these times heavy lamb processors had to bid up to secure their supply.
Seasonality suggests there might be some hope of a narrowing discount for heavy lambs when spring supply hits. Figure 3 shows on average winter marks the lowest point for heavy lambs relative to the ESTLI. Late winter and spring will see some improvement in the relative price of heavy lambs.
The sale of suckers partly explains why heavy lamb prices improve relative to trades in the spring. Suckers are generally sold at lighter weights, and spring is when we see peak supply.
What does it mean?
We may see trade and heavy lamb prices converge in the spring, but it is more likely to be due to trade lambs falling than heavy lambs rising. Strong supply should see trade and store lambs in plentiful supply, while heavy lambs might not be in strong supply until early next year.
Key Points
- Heavy lambs are still at historically strong discounts to trade lambs.
- Seasonal data suggests heavy lamb prices should improve relative to trades in spring.
- Stronger spring lambs supply is likely to push down trade and store lamb prices.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Mecardo
