Farmgate returns have been top-notch over the past two years and most of us are well versed on the drivers. It was hoped, as we rolled into a new export season from October 1, that the good times would continue. The need for high returns is even more crucial given the acceleration of on-farm costs in recent months. In most cases this has been eye watering but largely out of our control.
AgriHQ’s October Livestock Outlook report took an honest look at pricing direction in the months ahead, based on current market fundamentals. It’s safe to say it packed a bit of a punch in terms of pricing forecasts, especially around lamb. It was known that demand for lamb was softening across key markets and that downside is becoming more pronounced, quickly flowing back to farmgate prices.
Soft market conditions are out of our hands due to a number of factors – talk of a global recession, inflationary pressures, consumers looking to protect disposable incomes, and higher input costs due to drought and war. All big, meaty issues that are weighing on higher-priced proteins such as lamb. To balance that and prevent a significant build-up in inventories, in-market prices have to adjust lower, and that has been the case in most key markets.
This change of pace has effectively wiped about $7/head off lamb slaughter prices through December compared to AgriHQ’s September outlook. This same reduction continues into the opening months of 2023. While on paper these might look like subtle changes, they soon add up when offloading decent lines of lambs. It will also influence store lamb prices when volumes trading starts to ramp up.
Given the early heads-up, there is still time to revise budgets and make the necessary changes, especially given that farm costs and interest rates continue to rise.
Planting intentions for summer feed crops had already been shaved due to significantly higher costs. Now with lamb prices looking lower than expected, where does that leave planting prospects for feed crops? Certainly the numbers will be crunched as summer feed crops have become integral to mitigating offloading at the height of summer, when prices are usually at their lowest.
Taking a positive spin on all of this, a lamb price that is still hovering above $8/kg into the New Year is nothing to sniff at, especially given the negative tone out there. Even adjusting for inflation, this would be stronger than all but four years since the turn of the century. The downside in prices to Christmas might be stronger than what we are used to at this time of the year, but they did start from a $9.60/kg price point.
Farmgate lamb prices fell by nearly $1/kg between October and December 2015 to average $5.25/kg, based on a severe drop in export demand. Were we to endure the same downside from a weaker starting point, it would have been a much tougher pill to swallow.
This article was written by AgriHQ analyst Mel Croad. Mel’s reports provide key insights into what makes our sheep and beef markets tick. Subscribe to AgriHQ reports here.
