AgriHQ senior analyst Mel Croad says one processor has released a prime lamb contract for May-June supply offering $7.30-$7.80/kg, and indications are others will follow.
She wonders if the steep increase in price between now and then reflects market optimism, is a tool to smooth winter supply patterns or a combination of both.
“Indications this week suggest several other companies are set to release similar pricing contracts,” Croad said.
“It does give a positive impression that things are quickly looking up for lamb.
“Strong pricing levels through May-June may entice an early flow of lambs into the processors, spreading the number of lambs over a wider timeframe, helping mitigate any supply gaps or pressure”.
Current lamb prices are $6.25-$6.55/kg, but Croad says a $1.30/kg jump in price over the next 11 weeks is steeper than usual.
“We don’t normally see a jump of $1.30/kg from prices in late March-early April for contracts in May-June,” she said.
In previous years, May-June lamb prices have been between $7.20/kg and $7.30/kg.
Processors could be looking to lock in supply with this year’s kill estimated at 18.25m, one of the smallest ever.
Croad says the usual seasonal farm gate pricing volatility for lamb is less pronounced this season despite shipping issues, a high exchange rate and the contraction of the food service sector.
“On the whole, they have traded along at steady prices, which is a surprise given logistical challenges and that covid-19 is still present in some markets,” she said.
The reason is not clear, but Croad says it could be due to the more structured and stable pricing in the now dominant retail sector and the performance of exporters in selling product.
Red meat export values from November-February were well back on last year, but are trading within a much narrower band with lamb between $9.88/kg and $9.93/kg compared to $11.20/kg and $12.20/kg in 2019-20.
For beef the band, this year has been between $7.10/kg and $7.23/kg, which included record beef exports volumes for February of 51,150 tonnes, of which 40% went to China.
The re-emergence of African Swine Fever in China is generating fresh demand for protein especially lamb.
“What we are seeing are reports of African Swine Fever coming through again, but on a much smaller scale than 2019,” she said.
“That is creating a lift in demand as they secure protein, which is supporting improved lamb export prices.”
Beef pricing has also been relatively stable but was subject to fluctuation due to the US where import prices have spiked, fallen and are now recovering again.
Meanwhile, prices for hides and pelts have weakened further this year, continuing a five-year trend.
There have been reports of hides being dumped because the cost of processing to export state exceeds market returns.
AgriHQ analyst Nicola Dennis says the reason is unclear, but she is aware of tanneries in China, traditionally our largest market, closing due to environmental issues, while demand from Italy has fallen due to lower demand for luxury leather bags and leather upholstery in cars.
From 2016 to 2019, the volume of sheep pelts sold to China in February averaged about 5500t.
In 2020 exports for the month to China were 3600t, although there were logistical issues, and in 2021 it was 4500t.
Prices have similarly plummeted.
The price of pelts exported in February 2016 was $1.70/kg. In 2019 it had fallen to 97c/kg, last year it was 57c/kg and last month it rose slightly to 62c/kg.
It is a similar story for hides, although lower prices appear to be maintaining a degree of demand.
February export volumes to China from 2016 to 2021 have averaged about 10,000t, but the price has halved from $2.46/kg in 2016 to $1.15/kg in 2021.
Italy, also a major buyer of pelts, has reduced its purchases for February from 3200t in 2016 to 2000t in 2021, with the price slipping over that period from $4.35-$2.21/kg.
“The price of hides appears to be being undermined by alternatives,” Dennis said.
“It’s been falling for a while, but covid-19 has not helped people who are not buying luxury handbags and cars.”
