Up until the mid-noughties the Australian lamb market was largely driven by domestic markets.
As such, there was a limit to how high prices could go before consumers moved to other proteins.
Recently we have been hearing lambs are too expensive at domestic levels, but it appears there are no such problems in the export area.
Lamb export values in c/kg have been trending up since 2013, broadly in line with the Eastern States Trade Lamb Indicator (ESTLI) (Figure 1).
In August and September 2018, tight lamb supplies and record prices saw values move into double figures for the first time. Export prices have eased since, as supply has improved, but processors did manage to keep them above 900c/kg swt.
For mutton the story is similar. Mutton export values have closely followed lamb, as the two meats can be substitutes in some markets.
However, the mutton price at saleyard level never hit the highs of lamb, as supply remained relatively strong last winter and spring. This increased mutton kills during the drought, as processors benefited with good margins.
The spread between export values and saleyard prices give a very rough proxy of lamb and sheep export processor margins.
Both the ESTLI and National Mutton Indicator export/saleyard ratios have trended wider, with the December spreads very favourable for processors.
The export value data confirms anecdotal evidence of export processors coping OK with strong prices, while domestically consumers are starting to baulk at these levels.
For producers, the good news is that if export prices can be maintained, there is room for upside in saleyard sheep and lamb prices.
Ultimately, it's positive if everyone in the lamb supply chain is making money, and it appears that even at current historically high prices, this is still the case.
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