Nutrien Ag Solutions sheep farm.

The east-west price divide has been more obvious than usual in the sheep and lamb market in recent months, as Western Australia fails to keep pace. The Eastern States Trade Lamb Indicator (ESTLI) closed last week at 802c/kg, while the corresponding Western Australia Trade Lamb Indicator (WATLI) was at just 520c/kg - a 35% difference. Today we will take a look at how prices in the west stack up against the east coast, and attempt to explain why the price differential exists.

When we examine figure 1, we can see that it isn’t unusual for the WATLI to be trading at a slight discount, but the two prices have been heading in opposite directions of late. The same week last year the WATLI was at 748c/kg, and the ESTLI 853c/kg – a difference of a little more than 12%. The ESTLI is averaging 742c/kg since July 1, and the WATLI 524c/kg, 30% apart. The mutton price is hurting even more, currently at less than half the national price. This time last year it was only 8% lower.

So why the disparity? Reports of backlogs at processing plants in WA have been common in the second half of this year, with labour shortages and supply chain hurdles cited as the biggest issues. Meat and Livestock Australia reported in mid-October that “WA processors continue to work through large volumes of lambs from the 2022 cohort, supply continues to place downward pressure on prices”. For the year-to-date, weekly MLA slaughter data shows us WA sheep and lamb slaughter is down 7% on the same period for 2021, and 11% lower than 2020. Yardings have lost significantly more ground, down nearly 40% for the year-to-date, and have dropped away particularly since prices fell away from the eastern states  in August.

Live sheep exports only resumed mid-way through September, following the three month moratorium of boats during the middle east summer. The latest data available is also from September, so it doesn’t give us much insight into how trade and demand has picked up since boats resumed, but we can look at the year-to-September. Total live sheep exports for 2022 are down 35% to 287,300. Live exports out of the port of Fremantle specifically are also down 35%. We can also see that live sheep exports for the 12 months to September were down 31%, and if we look back two decades to 2002, the number for that period is down 93%.

The latest data for sheep transfers from WA to the eastern states is from September, when 40,600 sheep made the journey across the nullabor. This was up from just shy of 7000 from the month before, but July and August always have the lowest volumes. A better comparison is looking at previous Septembers. Last year more than 50,000 sheep went east in September, and in 2019-20 it was 105,360 and 196,400 sheep respectively. That was during two record years of transfers however, and if we look back to 2018 just 10,530 sheep went from west to east in September. Volumes generally build from October onwards, right through until June.

What does it mean?

MLA and Australian Wool Innovations most recent sheep producer survey, with data up to June, showed WA was the region with the third highest volume of lambs to sell between July and October, it marked the second largest cohort of Merino lambs up to the end of June, and had about 3.4 million lambs on hand. Supply, it would seem, is not diminishing. Demand also doesn’t appear to have much room to move either. A pick-up in live export could assist the mutton market, but with the eastern states dealing with flooded paddocks, there is unlikely to big demand from there in the short term.

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Key Points

  • The Western Australian Trade Lamb Indicator is trading at a 35% discount to the Eastern States Trade Lamb Indicator and at 32% below the National Trade Lamb price.
  • The mutton price in WA is close to $2.50 below the national indicator.
  • Processing capacity, lower live exports and interstate transfers, all contribute to less demand.

Click on figure to expand

Data sources: MLA

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