Thursday, August 11, 2022

Why are store lambs underpriced?

This year, there are more lambs entering the store market than buyers at the other end.

The store lamb markets have a distinctly different look and feel compared with last year. 

Back then, prices were moving up in weekly chunks – the Feilding yards jumped $1-$1.20/kgLW in only five weeks and the paddock market followed a similar path, though not quite to the same extremes. 

Yet this year prices have remained static at best and even weakened in places. 

So what’s different?

Buying confidence is always key in the store market and nothing gets the buyers excited like locking in a hefty-priced contract at the end of a trade. 

And that’s exactly what finishers had in-hand 12-months ago. 

Even those that didn’t were using word of supply contracts as a signal that slaughter prices would be strong through the tail-end of the season.

Twelve months ago processors were staring down the barrel of an especially slow off-season kill and wanted to use contracts to have more surety around supplies. 

Export markets were on a rapid road to recovery too, with little chance of reversing, meaning any big contract prices were unlikely to blow up in processors’ faces come time to kill.

This time around, meat companies have been more hesitant to release contracts. 

Slaughter forecasts point to the off-season lamb kill ballooning to the highest in more than a decade in both islands, reducing the need to secure numbers early. 

Tying into this, there’s just less urgency from finishers to lock down the last of the store lambs since, in theory, there’s enough to come onto the market to keep everyone well-stocked. 

Export markets have a touch of the jitters too, also slowing the release of slaughter contracts.

Another factor is processing backlogs in the North Island. 

Usually there’s a steady churn of finishers sending away kill-ready lambs and replacing these with stores. 

But the system’s become backed up again over the past few weeks due to a mix of winter plant closures and cold/flu doing the rounds through processing plant workers. 

On top of that, there are more dry ewes keeping chains well-supplied due to poorer scanning rates and the impact of drought and/or facial eczema during mating. 

Essentially, there are more lambs entering the store market than buyers at the other end. 

We didn’t have this last year.

On-farm conditions can’t be ignored either. 

This winter’s been a lot more stereotypical compared with how mild it was last year. 

While this is good for killing off bugs and parasites, neither grass or crops have the same substance to them through key finishing regions like Hawke’s Bay.

So how “cheap” are store lambs? 

As a percentage of schedule they’re not too bad. 

Ignoring last year’s exceptionally high prices, typically ewe lambs in the North Island sell for 47% of schedule via the paddock at this time of the year, which works out to be $4.30/kgLW, or about 40c/kg more than they are currently.

Funnily enough the numbers stay almost the same when viewing it as per head returns for finishers at the end of the trade. 

Buying a 35kg ewe lamb now and aiming for 21.5kgCW in October (to beat teeth eruption) would return around $51/head using historical averages, ignoring any additional transport/animal health costs. 

Based on AgriHQ’s Outlook forecast that figure jumps to $67 this year. 

If that $16/hd difference were to go back into the store market, that would place a 35kg ewe lamb at $4.35/kgLW.

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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