Restocker-to-trade lamb discounts present significant trading opportunities this spring.
Reduced producer confidence and a higher supply of store lambs with strong genetic performance lay the foundation for this trend.
During this key growth period of the year, utilising available grass budgets and generating cash flow can be achievable by capitalizing on these trading opportunities.
Spring marks a period of increased lamb supply in Australia—a seasonal dynamic that occurs every year. Typically with this heightened supply, a reduction in prices is seen across most lamb categories, but with heightened supply comes opportunities. Particularly for those with a body of feed and or an impending grain crop stubble to be utilised this spring.
Analysing current data on price spreads between restocker and trade lambs, along with an assessment of seasonal conditions, indicates significant trading prospects for producers willing to engage in the market during Spring 2024.
The strategy: Buy restocker lambs, trade them over spring and summer, and sell into the trade or export market.
Why? The price spread between restocker and trade lambs is nearing its widest point in the past 10 years.
Furthermore, the supply of “store” lambs will be abundant this spring. Challenging dry conditions in major sheep-producing areas in the south are expected to drive up numbers. Coupled with reduced producer confidence and low demand from the producer market for trades like this, it means that high-quality, well-bred lambs with good performing genetics will be available at relatively lower prices.
As shown in Figure 1, since May 2022, restocker lambs have been selling at a discount to trade lambs for the longest consecutive period in the past decade (measured monthly in c/kg cwt terms). For October 2024 (so far), the discount between restocker and trade lambs falls in the 19th percentile on a monthly basis since 2014, indicating a wide spread. This spread represents an opportunity to buy restocker lambs at lower prices compared to trade lambs.
READ MORE: What's happening with restocker lamb prices this Spring?
Based on conservative estimates of weight gain for lambs purchased this month, over a 90-day trade, an average daily weight gain of 200 grams per head would push these lambs into the market in early January—when the lamb market typically strengthens at the start of the year.
Figure 1 also shows that the spread between restocker and trade lambs tends to narrow in the final two months of most years. Given the expected high supply of store lambs this spring (which will likely reduce the supply of trade-weight lambs), it is reasonable to expect the restocker-to-trade lamb discount to remain wider than historical averages, further enhancing margin opportunities for producers trading lambs through this key growth period—if feed is available.
Trading opportunities in the lamb market at current rates are quite similar to those in the cattle market, especially when comparing heifers to restocker lambs.
This spring presents a compelling opportunity for lamb trading, particularly for producers with available feed. Boosting cash flow and utilising grass budgets during this pivotal growth period of the year is an opportunity worth capitalising on.
Ripley Atkinson's experience in the red meat industry and current role at StoneX developing price risk management tools for Australia’s sheep and cattle sectors ensures he delivers unique, whole of supply chain insights and analysis across key factors such as prices, supply, production and the drivers of the sheep and cattle cycles.
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