Saturday, March 2, 2024

Are light store lambs worth the gamble?

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At the end of the day, when the numbers are crunched and the jitters tabulated, buyers of store lambs coming in shy of 25kg should have a dollar to show for their trade when they cash out come April.
At the moment you can pick up a 25kg store lamb in the North Island for about $82.50/head.
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Everywhere in the country agents have been saying the same thing – buyers want the short-term store lambs. That’s meant that while good-sized terminal types are moving relatively freely, finding takers for anything 25kg or under is a tough ask, to the point where some South Island vendors aren’t even bothering to offer up their tail-enders.

Buyers’ perception is that it could all turn to custard before they reach finishing weights, and therefore the potential extra money in the trade isn’t worth the gamble. Not to mention some buyers expect store lamb prices will keep easing. 

But is everyone being too cautious?

At the moment you can pick up a 25kg store lamb in the North Island for about $82.50/head. Assuming a growth rate of 100g/day, you could reach 40kgLW (around 17.5kgCW) in April. AgriHQ, and much of the industry, is forecasting an average $7.60/kg slaughter price for then, which would return you $50/head before other costs. 

That return is only marginally better than what was possible last year but is well in excess of the normal $23-$36 range over the past decade. Of course costs have sky-rocketed since then and will have chewed into end profits, but odds are current store lamb buyers will have a dollar to show for their trade when they cash out. 

These figures should hold relatively true even if the lambs grow a little faster or slower given the slaughter market usually stabilises from February through to winter. Trends in the South Island are similar too, just with end margins a few dollars lower.

Another question is when would be the ideal time to buy. History shows that usually depends on feed. 

The biggest drops were back in 2017 and 2019 when 70c/kg came out of the market between now and Christmas – the former was due to a Hawke’s Bay drought, the latter due to a spring flush ending as export markets started getting the jitters. With no spring flush to over-inflate prices, export markets already “jittered”, and everyone having enough rain to keep them ticking over to next year, such a big drop is highly unlikely.

At this point we are shaping up more like a year ago. Crops were slow to get planted then, much like this year, and lambs were sub-par with growth too. The market was virtually stable over those weeks and only started dropping off after the New Year when the King Country ran out of feed and water.

That’s not to say store lamb prices won’t weaken this time around, considering the cropping and lamb growth situations are worse than last year, and slaughter prices are likely to tail off more sharply than back then. But it seems as though the worst of the market adjustment has come early this year.

Besides the obvious wildcard that is the weather, the market early next year could be dependent on how many would-be vendors have withheld selling some of their lambs because store returns haven’t been too disappointing to date. This could add extra supplies to the mid-late summer market. At the same time, early drafts are seeing fewer making the cut for processing. When combined with some meat companies lifting minimum weight requirements on lamb, this could have a similar effect.

This article was written by AgriHQ analyst Reece Brick. Reece’s reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.

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