As the Eastern States Trade Lamb Indicator (ESTLI) climbs towards 900¢/kg carcase weight (cwt) for the first time, Prices and Markets analysed 21 years of data to build some context around current prices.
The ESTLI rose to an all-time high of 896¢/kg cwt, rising almost 250¢, or 37%, over a three-month period.
Recent price gains would be described as rapid in anyone’s language, but we decided to take a closer look at historical data to determine just how extreme current price movements have been.
On a closer examination, we found that despite records tumbling on a regular basis over the last two years, lamb prices have in fact become less volatile than they were earlier in the millennium.
Price movements, and the rate at which they occur, have huge implications for the whole industry.
To illustrate this point, a 24kg cwt lamb sold during the week ending 24 March would have made $155, while a lamb of the same weight sold last week would have sold for $215 (on average in the eastern states, excluding skin).
One measure of volatility is the difference between the highest and lowest price level during any one calendar year.
Last year was a particularly volatile year, with the ESTLI hitting a low of 571¢/cwt in April, before jumping to 884¢/kg cwt by the end of August, representing a rise of 55%.
A look back at earlier years, however, demonstrates that this type of intra-year volatility isn’t actually unusual.
In the 21 calendar years between 1998 and 2018, the average premium of the highest price in the year over the lowest price was 51%, with 2001 (111%) the most volatile year and 2010 (21%) the least.
In fact, volatility has decreased in the last five years. Between 1998 and 2013, the average calendar year premium of the highest price over the lowest price was 55%, while this figure fell to 38% between 2014 and 2018.
Lower volatility is seen as a positive for most industry stakeholders, as there is more certainty around potential future price levels.
That said, most producers will be cheering at the sight of recent record prices. However, sustained high price levels can begin to impact margins of businesses further along the supply chain.
In the past, when prices have seen rapid appreciation, they have often fallen just as quickly. The fall usually coincides with a recovery in supply levels, such as 2011.
Based on weekly slaughter data, supply levels are in decline, with no evidence to suggest a recovery is imminent – at least until spring.
For the week-ending 21 June, eastern states lamb slaughter totalled 310,000 head, 16% lower than the same week in 2018.
So far, in 2019, since hitting a low of 619¢/kg cwt in February, the ESTLI has risen 45% to hit a high of 896¢/kg cwt on Monday.
With prices typically peaking in July, there is no evidence to suggest that prices have peaked just yet. Keep an eye on the NLRS weekly slaughter data and market reports, as prices are potentially in for a bumpy ride over the next few months.