When lamb supply tightens enough to push prices to the extremes like we are seeing at the moment, it makes the usual decision-making all the more difficult. History tells us that these values won’t last forever, which makes the timing of new season lamb marketing all the more critical.
With lamb grids seemingly edging higher in terms of minimum weights, we have seen light lambs spend most of the last five years at a discount to trade lambs. This creates an issue for those looking to market lambs early, or as stores, as they are often only a few kilograms away from tipping into a new higher-priced weight range.
When markets are at extreme highs, the value gained by moving lambs into a higher-priced weight range can be easily wiped out by price movement. A question we had recently was around whether processors will start paying more for light lambs in order to keep kill floors operating when old season trade and heavy lamb supply runs out.
Figure 1 shows that in the past the light lamb discount to the Eastern States Trade Lamb Indicator (ESTLI) has ranged from -35% to +5%. Currently, the light lamb discount sits at 15%. The seasonal pattern has light lambs highly discounted in late winter, moving towards parity at the end of the year. This makes sense as restockers aren’t competing on light lambs in late winter, as a price fall is often expected.
Looking at the end destination for light lambs, largely the Middle Eastern markets, we can see that in June exports fell to their lowest level since July 2023. A decline in lamb exports to Iran accounted for a third of the fall, and air freight issues no doubt had an impact in June. Given this, it’s hard to say if rising prices were also a factor in lower exports.
If export declines were not price driven, the Middle Eastern market will be looking to replenish supplies, which could see light lamb prices match trade lambs on a ¢/kg basis.
Using lamb indicator pricing from last week, we can run a simple trading budget (seen in Figure 3), which shows the extreme price highs we are seeing in the market currently. If prices in the current market conditions hold (an assumption) this would mean there is some profit in taking lambs from 40kgs liveweight to 55kgs. Even if prices fall to 850¢, there is some fat in growing out lambs on grass. It’s a different story if feeding, obviously.
Note that this trade calculation does not allow for any feed, freight, shearing, or administrative costs; these will vary between enterprises and should be calculated on a case-by-case basis when considering any trade
What does it mean?
Much depends on how rainfall plays out for the rest of winter and into spring, as this will dictate the cost of growing out lambs, especially if they are to be sold as suckers. At this stage, we might see light lamb prices move higher as the supply of trade and heavy lambs dwindles further.
Markets will reset when new season lamb supply starts in earnest, but we know that last year it never really had an impact on price.
Key Points
- Light lambs are trading at a strong discount to trade lambs at the moment.
- Lamb exports to the Middle East were lower in June, but it may not have been price related.
- There is some scope for light lamb prices to improve, especially if seasons are favourable.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: ABS, MLA, Mecardo
