Are we baa-rking mad, or are sheep & working dog prices connected?

All agricultural industries are inherently connected through the influence of similar seasonal and economic conditions. Some industries are more intertwined with each other than others, with particular relationships that cross between the boundaries of different commodities and affect the future direction of the corresponding markets.

It is important to note that correlation does not always equal causation. But reasonable inferences can be made where strong correlations appear between variables that are clearly influenced by each other. For further context, correlation measures the direction of a relationship, from strongly negative (-1) to strongly positive (+1). R-squared measures the strength of the relationship from 0-1, either negative or positive.

One of the better-known relationships is between bull and steer prices, with the ratio of the number of steers needed to purchase a bull in any given year consistent across time as the two prices move together. Using AuctionsPlus data since 2016, we can establish that this ratio consistently ranges between 5.5 and 7.2 steers weighing 280-330kg lwt and averages 6.3 steers to one bull. Figure 1 demonstrates the strength of this relationship with an R-Squared of 0.92. 

Figure 1: Relationship between average bull and steer (280-330kg) prices. 2016-2022.

Bulls are a direct input into beef cattle breeding operations whereas steers are an output. The increased revenue generated from higher output prices leads to higher disposable income and flows through to higher budgets allocated, and therefore demand, for bulls. You could also make the point that steer prices increase in times of favourable seasonal conditions and restocking, which also increases the number of females that require joining, leading to higher demand for bulls.

Another pairing of markets that are inherently connected are sheep and working dogs.  This is again a relationship between output price and budget allocation for input cost. Although working dogs are an indirect input in the form of labour exclusively for livestock mustering and yarding. As more income is derived through either lamb, mutton or wool production, more money can be allocated to securing a good working dog, sending average prices for working dogs higher as competition increases.

The correlation between the annual average price of all sheep breeds and categories and the annual average price of a working dog sold on AuctionsPlus is 0.94.

Figure 2: Relationship between average working dog and sheep prices. 2016-2022.

Goat, sheep and cattle markets are connected by the similar set of seasonal and economic conditions which influence the supply and demand for red meat. In this previous insights article we wrote about the idea that goats were ‘the canary in the coalmine’ for red meat markets.

Poor economic conditions including lower disposable incomes in the US and higher interest rates led to a drop-off in demand for goat meat. As a relatively niche product, goat meat was the first to experience the change in consumer spending decisions.

Figure 3: Relationship between average goat and sheep prices. 2019-2022.

Although there is only four data points for annual goat prices from 2019 to 2022, the correlation between goat and sheep prices is 0.998. The relationship with cattle prices is much weaker due to the longer generational interval of cattle compared to sheep and goats which creates a lag in the market due to longer restocking and destocking phases.

Now combined with a turn in seasonal conditions and increased supply, sheep and cattle markets are experiencing a similar downturn in prices.