In the final quarter of 2024, the national trade lamb indicator (NTLI) exhibited unusual seasonal price movements that deviated from typical patterns observed in previous years. Traditionally, the spring flush puts downward pressure on prices from late winter into spring as volumes of new season lamb swell, particularly in Victoria.
This initial phase in 2024 began as expected, with the NTLI easing to approximately 770 cents per kilogram carcass weight (c/kg cwt) by late September. However, the market dynamics shifted unexpectedly, as prices rallied above 900 c/kg cwt heading into late December. The peak of this rally was noted by Meat & Livestock Australia (MLA) at 946 cents just before the Christmas break, a period when sale yards typically close and trading volume diminishes.
As we moved into 2025, the lamb market saw a retracement to more moderate levels. A notable increase in lamb supply, which saw east coast sale yard lamb throughput rise 30% higher this January compared to the five-year average volumes for the month, contributed to the NTLI easing to around 780 cents. This fluctuation in price and supply provides a valuable perspective on the volatility and unpredictability inherent in agricultural markets, influenced by a variety of external factors including seasonal changes, market demand, and broader economic conditions.
To better understand these market movements, it is beneficial to refer to the Episode 3 NTLI fair value model. This model analyses several critical supply and demand metrics that have historically demonstrated a strong impact on lamb price trends. It assumes normal rainfall patterns for its forecasts, a significant factor given that long-term rainfall predictions are notoriously difficult to secure with high accuracy, even for organizations like the Bureau of Meteorology. In scenarios of higher rainfall, the fair value range is adjusted upward, whereas drought conditions lead to a downward shift.
The fair value model's projections for 2024 suggested a range from 560 to 785 cents, based on the inputs available at the time. The actual market performance, however, presented some deviations. The lowest price recorded was 584 cents on March 19, and the peak during winter reached 875 cents on July 17. This indicates that the model estimated the price trough to be roughly 5% softer than actual figures and the peak about 11% below the real winter high. Moreover, the model failed to predict the uncharacteristic summer rally, which saw prices peaking around 20% above the predicted top range for the year.
Analysing these outcomes on an annual average basis, the model predicted a 2024 average price for the NTLI of 672 cents, whereas the actual annual average culminated at 751 cents. This discrepancy, underpinned by the strong summer performance in the indicator, resulted in the model underestimating the actual average price by about 12%.
Looking ahead to 2025, the model forecasts an average annual price of 750 c/kg cwt, assuming a continuation of normal rainfall patterns. The projected fair value range for the year suggests a low in the annual price cycle of 625 cents and a peak of 875 cents. Such predictions are essential for stakeholders in the agricultural sector, providing a basis for financial planning and strategic decision-making.
Extending the outlook further to 2026, the model continues to rely on assumptions of normal rainfall patterns and suggests an average annual price of 832 cents, with a fair value range stretching from 695 to 970 cents. Should the season experience much wetter conditions, the model anticipates that peak prices could surge above 1000 cents and potentially test levels towards 1100 cents. Conversely, a transition into drought conditions could force prices back towards the mid to low 500 cent range. These projections illustrate the significant impact that climatic conditions can have on agricultural commodities like lamb, highlighting the importance of environmental factors in shaping market dynamics.
While models like the EP3 NTLI fair value model provide critical insights into potential market trends, the inherent uncertainties of weather patterns and other external influences make precise predictions challenging. Stakeholders must remain vigilant and adaptable, ready to respond to market shifts that may arise from unexpected quarters. This dynamic interplay of factors ensures that the agricultural market remains complex and nuanced, requiring continuous analysis and adjustment.
Matt Dalgleish is a director of Episode3.net and co-host of the Agwatchers podcast.