Talk of lamb export markets driving the record lamb prices at saleyards and over-the-hooks has been occurring for a while now.
The latest export figures and export values show a squeeze on exporters, but interestingly, things have been tighter in the past.
The July export figures weren’t extraordinary, but they were still strong.
Since lamb prices went through the 700¢ level and headed towards 800¢, we have been hearing that lambs are getting too hot for export markets.
Despite high prices, July lamb exports were 12pc stronger than July 2017.
There was a fall in exports to the US, which were down 9pc, but exports to China were up 52pc on July 2017 and remarkably for this time of year, it was China’s fourth highest import month on record.
To date, lamb export value figures are only available up until June, but they still show some interesting trends.
Lamb export values, converted to cents per kg shipped weight, jumped higher in June (Figure 1).
While not hitting record highs, it seems that tightened supply in June saw competition strengthen and export prices gain 13pc to hit 898¢/kg swt.
The average Eastern States Trade Lamb Indicator (ESTLI) of 656¢ for June was at its largest discount to export values since December. This suggests margins for lamb exporters were pretty good in June.
Obviously things changed in July, with the average ESTLI coming in at 748¢/kg cwt.
If we plug this price in and assume unchanged export values, the ESTLI discount to export values comes in at 150¢.
This is a much tighter margin and we suspect export values may have risen somewhat, but even if it’s right, we have seen this margin tighter in 6 months over the last four years.
Back in 2011, the margin between export price and lamb price was as narrow as 50¢.
It is worth noting, that generally when the margin between export values and lamb prices does close under 150¢, it reverts quickly. Fortunately for growers, it’s not always falling lamb prices, it can be rising export values as well.
What does it mean?
Export markets are getting used to lamb prices above 800¢ in our terms. We have been there for 15 months now, and it’s hard to see them falling back below without a significant lift in supply.
There is always a chance of the currency or trade policy related ‘black swan’ events disrupting, but in the absence of these factors, we can expect export markets to continue to help drive good prices for lambs.
Maybe the ESTLI won’t stay above 700¢, but a fall below 600¢ seems unlikely, at least in the short term.