Month: September 2017

No rain equals price gain

Local and international wheat markets continued to edge higher this week.  Local markets are still trying to get a grip on where the crop will end up, as it shrinks by the day.  The international market remains awash with wheat, but a rising rouble gave unlikely support.

Regular readers will be aware of the heavy wheat crop in Russia, and subsequent cheap exports emanating from the Black Sea.  This week those exports became a little dearer, as the Russian currency, the Rouble, rallied against the US dollar.

This helped lift CBOT wheat futures to a five week high, with the December contract gaining 8¢ for the week to get back to 452¢/bu last night (figure 1).  The Aussie dollar is not doing grain producers many favours, it’s stuck at 79US¢, putting December Swaps at $210/t in our terms.

Locally the dry spell in NSW continues to run down the potential crop, with prices responding accordingly.  ASX East Coast wheat, which we must remember is now deliverable in Victoria, was quoted at $283/t yesterday, up around $10 for the week.  Interestingly Geelong continued to lag a bit, although it was up around $14 for the week to $274/t (figure 2).

The more stricken zones of Newcastle and Port Kembla hit $321 (figure 2) and $316 respectively.  A good price but unfortunately there won’t be much wheat to deliver at these prices.

Barley prices are lagging significantly in the north, priced at $268 (Newcastle) and $250/t (Port Kembla), but in Victoria they are at a more normal spread, about $40 behind APW, at $240/t.

Canola values are also at a premium in the northern cropping zones, but not as much as you would think.  Newcastle Canola is priced around $550, with Geelong just $15 behind, at $535/t.  It’s hard to see much canola being produced in NSW, but there might have been enough carry over from last year to satisfy local crushers.

The week ahead

While it remains dry the question is how much more of a premium can local wheat markets get on Chicago.  In Port Kembla APW basis to CBOT broke through the $100/t mark this week.  The old ASX wheat contract, which was deliverable only in NSW (figure 3) only went higher than $100 premium to CBOT during the 2007/08 harvest.

Still softer, but a promising end to the week

The headline Eastern Young Cattle Indicator (EYCI) finished softer again this week, but not before staging a slight gain off the mid-week low of 513.50¢/kg cwt as saleyard throughput numbers decline in the face of the lower prices.

Figure 1 highlights the East coast yarding figures for the week, showing a 14.8% drop as throughput in Queensland, NSW and Victoria all come in lower as producers respond to softer pricing across most types of cattle in these regions. Queensland cattle prices showed fairly flat movement on the week, while NSW saw losses between the 1.5% to 3% range. Victorian prices were the heaviest, with falls between 3% to 5% on the week.

Meanwhile, East coast slaughter figures continue to trend broadly sideways, although the trend has remained above last season’s figures since early Winter – figure 2. As Angus, noted in his analysis piece this week the higher slaughter has now been weighing on prices, but this suggests price support will be evident later in the season – particularly if the MLA slaughter estimate is achieved come year end.

Figure 3 shows the price pattern for the EYCI, WYCI and 90CL. The volatility continues in the West for young cattle with a 9% drop to 536¢ while the EYCI finished the week at 515.75¢, a fall of 1.6%. In a promising sign, the 90CL beef export price back above 560¢ in six weeks with a close of 562.6¢/kg CIF noted.

The week ahead

The lift in the 90CL, lower throughput and the prospect of reasonable rain for the first time across most of NSW this week points to the chance of some support creeping into cattle prices for the near term. Particularly as the rain forecast includes some heavier falls expected in WA and the East of Victoria.



An honest politician, lamb, cattle & GM Canola

Key points

  • The South Australian government are maintaining a ban on the cultivation of GM crops.
  • Non-GM canola in Kwinana receives a premium $30.7 on average over Adelaide.
  • Victoria livestock on average trades at a premium to SA: Lamb (3%) & Cattle (3.5%)

On Thursday, I will be presenting to the Crop Science Society of South Australia on the topic of GM crops, and the markets associated with them. I thought this was therefore an opportune time to look at the GM moratorium, and whether the promised premiums are available.

South Australia currently has a moratorium on the production of GM crops, such as Canola. In recent months, there have been further campaigns to allow croppers access to the same tools as the other major cropping areas. The Premier of South Australia, was quite honest and upfront regarding their position on maintaining a ban:

“The truth is there are not a lot of votes out there in country South Australia for us, so in some ways we are free of the electoral imperatives about this”. Jay Weatherill, 2017

In figure 1, the Canola price in Adelaide & Kwinana is plotted. As we can see from the start of 2012 to present, the WA crop tends to trade at a premium to SA. The average spread between Kwinana and Adelaide is A$30.7. This is a relatively simplistic viewpoint, as there are logistical benefits of shipping from WA. Nevertheless, this still points towards the GM ban providing a premium.

The South Australian government may point to a knock-on effect where other commodities are receiving a boost. In that case, we thought it was worthwhile checking how strong the premium for cattle and lamb had been due to being from a GM free state.

In figure 2 & 3, the trade steer and trade lamb for Victoria and South Australia are plotted. I have chosen Victoria as a comparison, as they operate in similar markets. As we can see over the course of time there is a premium in Victoria for both cattle (3.5%) & lamb (3%).

These highlight, albeit in a simplistic manner that mixed farmers in South Australia do not on average achieve a strong premium in either canola or livestock due to the ban on GM cultivation.

Next Week/What does this mean?


The South Australian ban on GM cultivation is providing little if no extra premium to prices of livestock and canola. There may be premiums in other sectors such as the seafood and wine industry, however this is of little comfort to canola producers.

At present the South Australian govern believes that GM crops could have negative impact on premiums. However, it is important not to assume, and it would be beneficial for an independent research piece to be conducted examining all factors and determining in full where the premiums are.

At present producers do not have access to all the tools to help manage their crops, and evidence has shown from around the world that GM and Non-GM crops can co-exist. If there are no premiums available to these growers, then they are effectively subsidising other food industries.


Lamb Demand defying supply

The lamb market is throwing up some interesting data at the moment.  Meat and Livestock Australia’s (MLA) weekly slaughter data is telling us lamb slaughter is at a record for this time of year, yet prices remain historically strong.

Figure 1 shows that slaughter for the week ending the 15th of September has reached levels we normally see towards the end of October.  The 383,184 head slaughtered on the East Coast last week was the second highest level for the year, 10% higher than last year and the second highest on record for this week.

We can also see in figure 1 that weekly lambs slaughter this year is following the 2014 trend very closely.  While the slaughter trends for 2014 and 2017 are a close match, prices are doing a much better job of holding up this year.

In 2014 rising lamb supplies saw prices fall heavily in August, and stay there until December.  Apart from prices easing from extreme highs in June, we still haven’t really seen prices deteriorate in response to stronger supply.

This week the Eastern States Trade Lamb Indicator (ESTLI) gained 1¢ to sit at 598¢/kg cwt.  The story was different in the West where the WA Trade Lamb Indicator (WATLI) fell over 10% this week to 537¢/kg cwt, a 7 month low (figure 3).

Lamb supply in WA wasn’t particularly strong this week, but mutton was, with over 20,000 head yarded.  WA mutton values fell 65¢, over 20%, to 270¢/kg cwt.

 The week ahead

In the last few years the 400,000 head mark has been the trigger point for heavy falls in prices.  Lamb slaughter appears to be headed that way, but could just as easily track sideways for a month or so.  Does this this mean prices will also track sideways?  It’s hard to say, but demand appears to be very resilient.

Price movements in WA are a warning as to what could happen if lamb supply picks up enough to put pressure on kill space.


Steady as she goes for wool

In commodities, and particularly in agricultural commodities, a stable market is generally a good sign, especially if the market is at the top of its recent trading range. The wool market can best be described as “steady” this week, however, as usual there were some exceptions with the fine wool and crossbred selections in Melbourne underperforming the market.

The Eastern Market Indicator for the week remained unchanged at 1,525 cents in A$ terms, while in US$’s it fell 1 cent to 1,220 (Figure 1).  Not to be outdone, the market in the west followed a similar path, rising 2 cents to close at 1572 cents.

The skirtings market was by comparison erratic; gains on the first day of 10 to 20 cents were given back on the second day of selling to see this sector unchanged on last week.

A total of 40,699 bales were offered for sale this week. The steady market encouraged growers to more readily meet the market, with the pass-in rate of 6.9% well down from last week’s significant 15.5%. (Figure 3).

In regards to the Melbourne fine wool market performance, this was affected by an increasing prevalence of wool exhibiting higher mid breaks. To emphasise, AWEX report that wool with less than 20% mid breaks found increased competition and greater premiums.

The week ahead

A total of 41,483 bales are listed for sale next week across the three selling centres. This is consistent for the next three weeks as the early spring shearing rolls into stores.

The market has been a bit “bouncy” up to this week, we wouldn’t predict either stable or unstable for next week, its “one of those times” in the wool market!

Half full or half empty. It depends on where you farm

The Australian east coast crop is a tale of two continents, with the bulk of NSW and QLD in a poor state, and Victoria/ East SA developing. The market is well and truly capturing the status of the crop, and the domestic market is pricing accordingly. This creates an issue of premiums being available (half full), but being unable to take advantage of them (half empty).

The futures market has been largely flat in spite of the release of the WASDE, the report had little in the way of surprises. The market has been trading in a narrow band between A$197 and A$205 for the past month (figure 1). The chart is a stark reminder of how quickly markets can move, with December swaps trading from a high of A$280 to a low of A$197 since the start of July.

In the early part of the week, I spent time in NSW and had discussions with a number of grain brokers and agronomists. The NSW story is turning into a horror, according to all reports the damage from frost and the lack of in-season rainfall has likely reduced the bulk of potential from the crop. We can see this reflected in the market with Port Kembla basis levels (figure 2) continuing to maintain at historically high levels.

If a grower in Port Kembla had taken out a swap during the height of the July rally, then their overall price today would be >$370, which shows the value in strategic marketing using derivatives.

At a flat price level, I have taken the pricing for Kwinana, Geelong and Port Kembla (figure 3). We can see that Geelong and Port Kembla have seen strong rallies during September, whereas Kwinana has remained relatively flat. This is due to the domestic demand, largely in NNSW & QLD pricing strong premiums. At present SNSW & NVIC are pricing into the feedlots in the North.

Next Week/What does this mean?

The problem with having a premium basis level at the moment, is that it is on the back of poor cropping conditions, and so while some will benefit, many will not have the production to participate in the current strong market.

In the next week will we see the speculators continue to view the market as bearish, or will we start to see additional profit taking?

It seems it was a dead cat bounce

Cattle supply continues to track higher in saleyards, and price lower.  After a bit of a bounce two weeks ago, dry weather and more numbers resumed the slide, with the EYCI this week hitting a 26 month low.

A couple of weeks ago we wrote in this column that the Eastern Young Cattle Indicator (EYCI), and cattle prices in general, might have found a floor.  Turns out we were wrong.  Figure 1 shows the EYCI falling below the spring lows of 2015, and heading towards 500¢.

While weakening demand has been playing its part in lower prices, this week supply was the culprit.  Figure 2 shows EYCI yardings hit an 18 week high, and were, in fact the strongest September yardings on record.

Rainfall and grain prices are not helping demand.  Since late August ASX East Coast Wheat Futures have gained $25, with feed values rising in sympathy.  This is obviously continuing to pressure lotfeeders.

There wasn’t a lot of joy for any cattle types this week.  All state domestic feeder steer indicators have fallen back under 300¢, except in South Australia. Heavy Steers are just above 500¢ in Victoria and SA, but look destined to break this support level as well.

Over in WA the Western Young Cattle Indicator (WYCI) has also weakened, but only eased 6¢ to 589¢/kg cwt.  Unlike the EYCI, which is sitting 26% below this time last year, the WYCI is just 4.7% lower, so things aren’t too bad for WA producers.

The week ahead

Once again there is no rain on the forecast for major cattle areas, so we don’t expect prices to rise any time soon.  There is some good news though, the longer cattle prices continue to fall, and the more cattle are liquidated, the better prices will be in the medium term if it ever rains again.

No joy for lotfeeders, or their suppliers

Grainfed cattle prices have fallen in line with the rest of the market, with the consistent decline putting pressure on lotfeeder margins.  With pressure on lotfeeder margins comes lower feeder cattle prices, although, on a relative scale, they are performing ok.

The Queensland Over the Hooks 100 day Grainfed Cattle indicator continued to ease last week.  Grainfed cattle prices are now at two year lows, sitting at 513¢/kg cwt.  This is the culmination of a 10% decline since mid-June, with the indicator now sitting at a 14% discount to the same time last year.

Figure 1 shows that grainfed cattle input costs, being feeder cattle and grain prices, have also been on the decline over the last two months.  Input costs are not, however, sitting at a two year low, in fact they are not sitting far from the Grainfed cattle price, at 507¢/kg cwt.

Obviously this means lotfeeder margins are on the squeeze, as input costs approach selling costs.  Figure 2 shows that feeder steers bought last week, and contracted at the current price, will return just $20 in both northern and southern regions.  After overheads most lotfeeders are likely to be making a loss, but things are not as bad as during the high grain price days of 2009-2011.

The situation is a bit different now, compared to 2009-2011.  Back then cattle on feed numbers were low, with cattle going through feedlots at break-even to keep the doors open.  Currently there are plenty of cattle on feed, and we have seen over the past couple of years that weak margins don’t last long.

Having record numbers of cattle on feed is part of the problem, as strong numbers exiting feedlots is partly responsible for pushing the price of finished cattle down.

Interestingly input costs are basically the same in northern and southern markets, but feeder and grain prices differ.  In the north sorghum and feed cereals are priced in the $280-300/t range, while in the south feed barley is at $210-230/t.  By contrast, feeder cattle in the south are cheaper, with the Medium-fed paddock feeder at 330¢/kg lwt, while the short fed feeder, more common in the north, is costing 309¢/kg lwt.

Key points:

  • Grainfed cattle prices have been on the decline, losing 10% over the last two months.
  • Lotfeeder margins are currently low, and likely to result in fewer cattle on feed this quarter.
  • When feeder cattle supply improves in the spring, prices could fall a further 20¢/kg lwt.

What does this mean?

It’s not unusual to see tight feeder cattle supply causing low lotfeeder margins at this time of year.  The question is what happen when supply improves in September and October.  Under current grainfed cattle and grain prices, feeder prices will have to fall 20¢/kg lwt for lotfeeder margins to improve back to $100/head.  Figure 2 shows that $100/head is more in line with recent history.

Alternatively the grainfed cattle price could rise 25¢/kg cwt, which would also restore margins to $100/head at current feeder cattle values.  This is not out of the question if the number of cattle on feed has declined.

Lower throughput and lower prices equals softer demand

Mild price declines across the board noted for all categories of national saleyard lamb and sheep this week despite lower numbers at the saleyard. The headline Eastern States Trade Lamb Indicator (ESTLI) down 2.6% to close at 597¢/kg cwt, while National Mutton off just 1.2% to 400¢/kg as gains in NSW and Tasmanian mutton offset falls elsewhere.

Figure 1 highlights the drop in east coast lamb throughout this week as the spike in NSW supply from last week retraces. East coast throughput off 38.5% on the week to record just under 159,000 head of lamb change hands at the saleyard, dragged lower by a 40% decline in NSW lamb throughput and a 44% decrease in Victorian numbers.

East coast sheep yardings lower too on the week, albeit marginal, with a 5.4% drop noted to see just over 59,000 head sold – figure 2. Despite the decline, east coast sheep throughput still elevated for this time of the season in comparison to the levels set in 2016 and the five-year average on the back of higher than normal NSW sheep yardings. WA sheep yardings persistently higher than normal too this week (figure 3) and having an impact on prices there with WA mutton off 13.7% to 335¢/kg cwt.

National saleyard lamb categories all softer this week with falls noted between 1-4%, Merino lamb leading the decline with a 3.8% drop to 539¢/kg cwt. National Trade and Heavy lambs the better performers, only down 1.8% (596¢) and 1.6% (601¢), respectively. The lower prices on the back of a reduced saleyard offering indicative of slightly weaker demand.

The week ahead

A rainfall forecast for the next week devoid of any significant moisture to all bar the south-western extremities of WA and the southern parts of Victoria isn’t likely to provide much support for lamb and sheep prices nationally. Pasture in Victoria is still looking pretty good thanks to some regular Spring rainfall over the last fortnight, which may support some prices in the Southern areas, but the broader picture points to further mild price declines into next week.

Spring in the wool markets step

The wool market has been rather playful of late, appearing to have a spring in its step with a few giddying price highs and corrections. This week’s market was no exception with large movements in red across the board.

The Eastern Market Indicator dropped down 31 cents to 1,525 cents in A$ terms this week (Figure 1).  The market in the west followed a similar path, falling 30 cents out to 1570 cents close (Figure 2). Our dollar is still holding up against the US$, which meant the EMI fared slightly better in US$ terms finishing 22 cents lower on the week at 1221 cents. The A$ traded at 80.5 early and pulled back as the week progressed which was reflected in the market as prices stabilised on the second day of auctions.

The finer fibres of less than 19 micron posted the largest losses for the week. Given that they had been holding ground in comparison to the rest of the market recently, it was only a matter of time before widespread corrections occurred in this category. Losses ranged from 30 to 60 cents and were highest in 18 -19 micron wools.

A total of 42,764 bales were offered for sale this week. However, growers were reluctant to accept any retraction in price, passing in a significant 15.5%. Word from the floor suggested that there was interest from exporters chasing any of the passed in lots after sale hours (Figure 3).

Merino skirtings and crossbred wools also felt a quick early blow in the market before stabilising on day 2. Recovery was slightly better than for Merinos, with losses of 15 to 30 cents for crossbreds and an average of 20 cents on skirtings. Cardings were the only category that managed a positive move by gaining just a few cents on the week.

The week ahead

A total of 43,077 bales are listed for sale next week across the three selling centres. As long as we don’t see any significant global actions affecting the currency and trades, the hinted demand from exporters raises our hopes for a favourable week.