The big spring store sales are progressing through the Riverina, and it coincides with rapid spring growth in high rainfall zones further south and east. While this week’s rain might make finding a winner of the Melbourne Cup more difficult, it might make finding a winner in a Merino lamb trade a bit easier.
It’s no secret that store lambs have never been more expensive at this time of year. And despite a brief rally in the wool market, it seems Merino sheep have never been more out of favour. After trawling through Meat and Livestock Australia’s (MLA) Statistics Database, we’re confident that the National Merino Lamb Indicator (NMLI) is a reasonable measure of Merino store lamb prices.
Figure 1 shows the NMLI, like other lamb indicators, has come off winter and early spring peaks, but last week saw a solid rally, again in line with other indicators. The NMLI is 66% stronger than this time last year, which sounds terribly expensive, but as always, we need to look at prices in a relative sense.
Figure 2 shows the NSW and Victorian Merino Lamb Indicators’ discount to the Eastern States Trade Lamb Indicator. It is interesting to note the much heavier discount for Merino lambs in Victoria. Numbers of Merino lambs going through saleyards in Victoria were 10% of those in NSW and are likely still old-season lambs, as opposed to new season in NSW.
The 10% discount for Merino lambs to trade lambs in NSW is weaker than the long-term average, although it is strong relative to the last three years of extreme volatility.
In Figure 3 we have punched the buy numbers into a basic trading table and made some assumptions on wool price, based on current levels, and a range of prospective sell prices. The gross margins look pretty attractive if it’s being done on excess green feed.
If lambs are in a feedlot situation, the cost of feed means the trade will be marginal if lamb prices fall to 900¢/kg cwt. If we run a similar trade budget for crossbred lambs, which are costing $30–40 more than Merinos, the gross margins are weaker, but this obviously doesn’t account for husbandry costs.
Note that this trade calculation does not allow for any, freight, shearing, or administrative costs and uses an assumed estimated feed cost; these will vary between enterprises and should be calculated on a case-by-case basis when considering any trade.
What does it mean?
Thanks to the very good prices for every kilogram of liveweight gain, Merino lamb trading scenarios look pretty good. Uncertainty around prices in the new year, the weight gain performance of Merinos, and costs of finishing are likely holding buyers back and leading to a preference for trading crossbred lambs.
Key Points
- Merino store lambs are in relatively good supply through New South Wales.
- Merino lambs are trading at a larger-than-average discount to trade lambs.
- Gross margins on Merino lamb trades currently look better than crossbred lambs.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, AWEX, Mecardo
