In a recent Mecardo lamb analysis article we highlighted the discrepancy between the sheep & lamb price quotes coming out of the saleyards compared to the prices quoted for “Over-the-hooks” (OTH) lambs.
At the moment, everyone continues to quote saleyard prices as being miles ahead of OTH prices. We need to remember that not a single lamb in those saleyards has been weighed. No-one follows
up with the buyer to work out what they dressed out at. The market reporting is based on the sale price ($ per head), converted using an estimated weight and an estimated yield to arrive at the cents per kilogram carcass weight.
It could be argued that selling via saleyards needs to return a higher price to the seller, agents fees, yard usage, freight etc. can be added costs compared to direct to meatworks sales. But if you make that argument, you also need to consider that perhaps OTH prices should be more attractive as the processor only pays for saleable meat, and lambs that have by-passed the saleyard should perform better due to less stress.
This week we had an example related to us where a producer delivered lambs to market after weighing them on-farm. Based on what the market was quoted, they should have realised $150+ per head. They didn’t. They realised $130. The last lot the grower recently sold over the hooks at current prices (as comparable as we can get), same weights etc. returned $134/hd.
It’s a similar situation for mutton, this week the Victorian saleyard mutton indicator was reported 64 cents higher than the OTH price. Both Medium & Heavy Trade Lamb in Victoria enjoyed a 38-cent premium, while nationally the indicators were 62 cents apart.
Interestingly, this week the ESTLI had a lift in price for lamb with the indicator up 40 cents, while OTH prices were quoted easier by 2 cents.
This is not an isolated example; so, it begs the question why the difference?
There are a few possibilities -
- The yield to convert to a CPK CWT is under-estimated resulting in a higher CPK quoted price in saleyards. The MLA livestock reporting staff are trained to accurately assess weight & yield; they also review regularly their estimates by following through particular sale lots to slaughter.
- Could it be that the OTH price is reported as lower than the actual prices paid? Agents and sellers direct to meatworks would know if this is correct, but our view is that unless processors were actually trying to “talk the market down” this would not be the case. In this age of rapid information flow that strategy would be destined to fail.
- Perhaps “there is a logical reason for this and we just haven’t worked it out”!
We are pretty sure that buyers would not be paying this differential for identical lambs just because they were delivered or purchased at auction. As one wag said, “no-one is suggesting buyers are stupid!”
There is an argument that in a strong market OTH prices will lag saleyards, but we don’t think this will last for more than a few days as buyers and sellers adjust to the differing market signals.
The reporting of lamb and sheep markets needs to be accurate (it may be but these questions linger), so that agents, advisors and sellers can make informed decisions.
With the current price arbitrage, we don’t see why any sheep or lambs would be going direct to meatworks; clearly this isn’t so as processors are using whatever means they have to secure supply.
The wide difference in quoted saleyards vs OTH prices doesn’t make a lot of sense.
What is your experience with this, is there an explanation that we need to know about? Perhaps this is the time to have this discussion with your agent, if you are advised to sell through the saleyards, weigh the lambs and then get the agent (or the MLA reporter) to estimate the yield. This will confirm exactly what price you received per kilogram carcass weight.
Having this information will only improve your skills in marketing so it should be a “no-brainer”.