By Zoë Macfarlan, AuctionsPlus Market Insights.
Spring has arrived and with a wetter than average season predicted across the eastern seaboard, there is no doubt farmers will have new season lambs to sell, likely with much more weight than this time last year. Farmers are left with the decision to either sell earlier, aiming for 16 – 20kg dressed weight (DW), or retain on farm and fatten to reach prime trade weights of 20 – 24kg DW. There are several factors to consider when making this decision, however the underlying driver is profit. In making these decisions, producers should look to assess the costs of retaining lambs in comparison to cashing in earlier.
The AuctionsPlus Market Insights (AMI) team have analysed AuctionsPlus data to determine price trends for different new season lamb weight categories. Classifying lighter lambs as 16 – 20kg DW and heavier lambs as 20 – 24kg DW, the AMI team have analysed traditional terminal breeds of White Suffolk, Suffolk, Dorset and Poll Dorset lines sold as mixed sex or wether lambs on AuctionsPlus between 2015 and 2020. This analysis will help to determine where the demand lies for lambs and seek to provide farmers with a few different selling approaches for the upcoming lamb season.
Looking into AuctionsPlus data dating back to 2015, the Central Western (150,084 head) and Riverina (178,389 head) regions of NSW along with Northern (85,339 head) and South Western (62,982 head) Victoria have dominated the purchases of 16 – 20kg DW lambs. Central Western NSW has also secured the most stock for the first six months of 2020 with 23,980 head traveling to the region. The consistency of these varied regions supported by the differing operations run in the regions, highlights that vendors can be confident in the competition that lies ahead for their light lambs.
Looking back at average price trends since 2015, on a cents per kilogram (c/kg) dressed weight basis, selling lambs earlier, at that 16-20kg DW, has in the past resulted in a premium. As shown in Figure 2 below, in 2020 (as of July 30th) the data shows vendors are making on average 122c more for lighter mixed sex and wether lambs, a 13% increase, compared with holding onto them to get to that 20-24kg DW mark. Savings on management and feeds costs are the predominant supporters of turning off lambs earlier as drenching and labour costs can be minimised and use of pasture can be reserved for breeding stock or other farming operations. The strong season thus far in conjunction with the prediction of a good Spring on the eastern seaboard presents a prime opportunity for vendors to sell their lighter lambs and maximise profits.
As highlighted, what producers need to weigh up is what works best for their business. While understanding every enterprise is different, carrying on those lambs to meet kill weights can add further pressure in conjunction with costs of feed. However, on farm feed lotting is a valuable tool for maximising profit. As a basis the AMI team have gathered a guide from MLA. Figure 4 shows the cost of feeding per head being approximately $59.43 ($/head); or converted to c/kg DW for 25kg carcase is 238c. Thus, producers need to evaluate if the 238c/head cost is too much compared to profits from turning off lambs early.
As the economic outlook around the world sits on a knife edge as a result of COVID-19, the Australian sheep market continues to be directly impacted. The export market in particular, has felt the full impact of the pandemic with lockdowns resulting in consumers seeking to spend less on grocery bills, and opting for cheaper protein substitutes in chicken and pork. The lockdowns have also resulted in the food service industry in our major trade partners being almost completely shut down as well as local processing facilities, placing significant pressure on the Australian sheep market and over-the-hook rates. It is likely that should prices for light and trade weight lambs see a downward trend, producers with an abundance of feed will be more willing to punt on a strong enough market recovery to see a positive margin on heavier lambs in the early months of 2021.
Big lamb markets in the U.S. have been decimated by the virus seeing vast closures predominantly in the food service sector which includes restaurants, cruises and airlines losing a large portion of their business in the most recent 6 months. These external factors will play a decisive role in when producers decide to sell and with the domestic market becoming their main viable option, supply could also be a constraint depending on volume of stock offered in the lighter category. What is clear is there will be lambs to sell, but at what stage is what needs to be weighed up.
So, to sell or not to sell? When making this decision, farmers will analyse the costs of retaining lambs or turning them off earlier and as discussed, there is an abundance of selling opportunities producers are exposed to when turning off lighter lambs therefore being a viable option in the current market.