Domestic Lamb

Forward price signal likely in AuctionsPlus prime lamb sale

Terry Sim, March 19, 2015

AuctionsPlus logoAustralia’s lamb industry might get its next best indication of forward prices in AuctionsPlus’ inaugural prime lamb farmgate sale on March 27.

It will be the online auction platform’s first prime lamb sale with a forward contract component and around 10,000 lambs are expected to be offered.

AuctionsPlus chief executive officer Anna Speers said producers were being encouraged to list stock on the spot market in the sale, but also to forward contract lambs for April delivery.

She said any lambs for forward contracting will be assessed as they stand. The assessor will then determine with the vendor what stock will be available for the second week of April or whatever forward date is set.

“They will then draft at delivery, based on the contract.”

“For example, someone might 1000 prime lambs between 30-32 kg available second week of April so we will be encouraging them to do that,” she said.

More transparency needed in lamb forward pricing

Ruralco’s southern operations livestock manager Rob Bolton welcomed more transparency in lamb forward pricing.

“I would love to see forward opportunities all the time.”

Only lamb purchasers had input into forward pricing in Australia at the moment, with processors only seeking a percentage of their future requirements and averaging out pricing by buying on the physical market, he said.

He agreed that there was potential for producers to have a greater role in setting forward prices through online selling, because it was based on farmgate-selling with producers setting reserves.

“I’m going to watch this with great interest to see what the producer interest in it is and what the buyer interest is.

“I think this is a terrific initiative of AuctionsPlus and I hope it works – I’m not convinced it will and I’m also not sure it won’t work for which party or both,” he said.

“It is going to need the support of the producer and the processor.”

Lamb industry needed forward pricing signals

Landmark’s national livestock director Mark Barton welcomed the sale and said the industry needed some forward price signals at the moment.

The industry had to become more forward price focussed rather than relying on short-term prices, he said.

He agreed the AuctionsPlus sale would help take some of the responsibility for setting forward prices from processors and take forward pricing into the open market.

No forward price signal since Coles’ 580c/kg contract

The most recently publicised lamb forward contract was 580c/kg for 18-25kg lambs delivered to Coles in late March-April. But saleyards are currently being filled by lambs due to dry conditions, and northern lambs ageing, exceeding domestic weight ranges or being turned off stubbles before sowing. Processors have been reluctant to announce forward prices or comment on the market.

TB White auctioneer at Ballarat Gerard White didn’t expect the physical market to correct itself for another month. He believed there was no pressure on domestic or export processors to secure forward supplies due to over-the-hook bookings and saleyard supplies.

Processor competition is expected to secure supplies

Ms Speer said AuctionsPlus was expecting competition from processors in the farmgate sale to guarantee forward supplies.

She said coming AuctionsPlus Bid The Grid sales for slaughter cattle will accommodate stock for sale on the spot market, but they will also have a forward contract component targeting cattle on grain. AuctionsPlus also is working on selling sheep with the Bid The Grid format to lot feeders, live export companies and processors.

“From a processor’s perspective we are helping them shore up supply and from a vendor’s perspective they are getting an opportunity to lock contracts in at a competitive rate.”

“We would encourage someone who had say around 3000 lambs available around that time to be making sure that if the season does goes backward or bad for them that they can still that contract,” she said.

“Obviously if something completely untoward happens we would encourage our assessors and vendors to communicate with processors early so that they know if there the vendor is going to have trouble filling that contract.”

Ms Speer said she would like to help close the current lamb price discovery gap between the spot market and the next processor forward contract, because it would provide surety to buyers and sellers.

“Having an extremely volatile market isn’t good for anyone because you could be on either side of that fence at any point of time whether it be high or extremely low.

“Personally I believe that having someone constant is far better than having something that is fluctuating,” she said.

“From our perspective, on taking a position in a forward market — long-term I would love AuctionsPlus to play a role in being able to help set that forward market and I think there would be some value in that.”

“Currently all our market data that we receive Australia-wide is based on historical information – there is not a lot of real-time information coming out to help vendors and processors set their prices.”

AuctionsPlus market operation officer Anna Adams said the inaugural prime lamb sale was scheduled in late March at the request of producers and agents and to give them enough time to plan. It is expected about 10,000 lambs will be offered.

“It is also timely for getting some short-term supply around the Easter break.”

“Also the contract lambs are starting to slow down now – it will be a good time when they will be looking for lamb supplies.”

She said it was entirely possible that processors were waiting for the March 27 sale to give an indication of producer price expectations and available supplies.

“AuctionsPlus has always been used as a price discovery tool – I would hope that they would use it as the basis for some of their prices.”

Source: AuctionsPlus, Ruralco, Landmark.


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