Month: December 2017

An early shear bring pre Christmas cheer

With the Christmas recess looming the market regained some upward pressure this week as exporters tried to lock in their requirements. Fine and medium fibre prices built up gradually across the sales, while most of the crossbred market moved into negative territory.

The Eastern Market Indicator (EMI) gained 7 cents to the week in Australian dollars, but when converted to US dollars, felt just a 1 cent increase. The story was similar in the West with the WMI lifting 8 cents.

Results from the superfine sale in Sydney this week were positive with a 36 cent gain for 16.5 micron fibres. This was the best result on the board with the other fine categories ranging from slight retractions to an average 20 cent gain. Medium fibre (19.5 to 22 micron) prices managed to correct themselves from the levels of the week prior. Rises of 15 to 25 cents were common at all three selling centres. Most microns and categories in the skirtings market received support in line with the gradual increase of the fleece market.

The crossbred market failed to bounce back like the Merino market this week. Prices continued to drop in the margin of 10 to 25 cents, particularly for lots that were poorly prepared. Locks and crutchings managed to attract some stronger prices in the oddments market and we saw washing lambs at extreme levels for the finer lots. The cardings indicators moved up slightly, with an average 3 cent increase across the three selling centres.

The week ahead

The bale offering over the last few weeks has been sizeable, and this is set to continue with 50,828 on offer next week. There has been discussion that the good market has driven a lot of growers to pull their shearing dates ahead of schedule this year. Given the offering we’ve seen over recent weeks, It looks as though many growers are running about a month earlier than on a typical year. If this is in fact the case, we expect that supply will drop out slightly in the new year.

And the waters prevailed on the earth… Gen 7:24

Forecast rain in the South-East corner of near biblical proportions for the week ahead keeps restocker interest high at the saleyard and young cattle prices across the country firm slightly in response.

Figure 1 highlights the anticipated rain event, with falls noted into the 200-300 mm level in Northern Victoria and falls of at least 50mm to much of Victoria and NSW. While its not great for many out there trying to complete this season’s harvest it’s a boost to backgrounders, with the high moisture and warm weather giving a lift to pasture growth in the coming weeks.

Indeed, spirits of restockers across the east coast have been encouraged and this has played out in restockers continuing to pay above average premiums at the saleyard for young cattle. The East coast restocker spread pattern showing that they are happy to pay over 6% more than the headline EYCI to secure stock – figure 2.

In an analysis piece released on Mecardo last month the main driver for the increased restocker spread was coming from Northern restockers. However, in recent weeks the Southern restocker premium has lifted too with premiums over the EYCI of 4-5% noted during November being paid, reflecting the growing optimism for a good Summer grazing potential as we head toward the end of the year.

The EYCI finished the week up 2.5¢ to 579.75¢ and the Western Young Cattle Indicator (WYCI) was also higher, lifting 13¢ to 585¢. This was despite the 90CL Frozen Cow easing slightly to close at 609¢/kg CIF – figure 3.

The week ahead

Its hard to see young cattle prices ease into the coming week with the amount of moisture that is forecast. Producers know its going to translate into decent pasture and they hate seeing grass going uneaten when they know cattle could be getting fat on it.

Make sure you stay safe out there this weekend and remember – don’t drive through flood waters. Oh, and spare a thought for the frantic lot trying to get as much harvested before the deluge.

 

Rain pain for the grain

We set out trying to work out what the heavy rain which is falling across all eastern cropping zones over the coming days will do to prices.  It’s not as simple as looking back at 2010-11 when harvest was delayed, as that was a bumper crop, and this is not.  We’ll have a look anyway.

Figure 1 shows the impact of heavy December rain back in 2010 on feed wheat prices delivered Melbourne.  Over the course of two weeks the price lost $70/t as shot and sprung wheat was harvested and overwhelmed feed users.  Basis to CBOT moved to an all-time low of around -$70/t, as CBOT rallied due to the now tighter supply of Milling Wheat coming out of Australia.

Due to the much tighter total supply of wheat, we don’t expect such a dramatic fall in feed prices this year.  We could however see a spike in milling wheat prices, as already low supplies are exacerbated by downgrades.

The market has already started to move.  APW Geelong rallied $5/t today, up to a 7 week high of $265/t.  In PortAdelaide APW gained a little ground, but remains at $250/t.  SFW delivered Geelong hasn’t moved yet.  In fact it was a little yesterday, at $228/t.

In international markets price were down this week, Dec-17 CBOT hit a contract low 411¢/bu (figure 2).  In AUD terms CBOT is at just $202/t, down around $8 for the week.  Basis just keeps getting stronger.

The week ahead

As we outlined in the Canola analysis earlier in the week, it looks like a hold at the moment.  Sales of milling wheat, for those fortunate enough to have it in store already, can probably and wait to see how prices wash out after the rain.  Feed grain prices are unlikely to find any strength from here, so if looking for cash flow, feed barley and wheat would be grains with the least upside, and most downside.

Rain could lead to short term gain

Unseasonal rain will have an impact on sheep markets.  This week it had an impact even before it fell, with the Eastern States Trade Lamb Indicator rallying back to 613¢/kg cwt this week.  The unpredictable weather might see more surprises yet.

The supply, demand and price equation is still not adding up relative to last year.  Figure 1 shows that to the end of last week east coast lamb slaughter hit its 2017 high, just shy 400,000 head.  Lamb slaughter was 3% higher than the same week last year, yet the ESTLI remained 17% higher.  We keep talking about it, but lamb demand is very strong.

For sheep the equation is similar, but the lift in demand is more dramatic.  Last week 18% more sheep were slaughtered than this time last year, yet prices were 14% higher.  Total sheep and lamb slaughter for last week was 6%higher than this time last year, and just shy of a two year record (figure 3).

Interestingly however, total sheep and lamb slaughter is right on the five year average.  This tells us there is slaughter space available, it just needs to come back online, and at current prices, export demand needs to be strong enough.

In the west lamb prices maintained their strength.  At 578¢/kg cwt, the WATLI is 100¢ stronger than this time last year, and not far of the ESTLI.  Restocker lambs remain cheap however, at 508¢/kg cwt, compared to east coast at 680¢/kg cwt, and this is encouraging the shipping east.  Lambs from WA can be landed in eastern Victoria around $10 cheaper than the local price.

The week ahead

The forecast for the coming days is for plenty of rain.  This is the time of year when lamb yardings peak, and processors rely more heavily saleyard supplies than usual.  Disruption to saleyard supply due to rain will be hard to replace with direct consignments.  This means we could see a short term spike in lamb prices next week as processor battle it out for supply.

Russian wheat crop- growing or glowing?

The Chicago futures market was closed for the thanksgiving holiday, causing the market to be quiet. In this update we take a look at pricing, and radioactive issues in Russia. We know the Russian crop is growing, but is it also glowing?

The markets were quiet this week, as they celebrate thanksgiving in America. In figure 1, we can see that the futures market continues to trade in a narrow range of around 10¢/bu (A$5/mt). The lack of fresh news is likely to continue trading this range for the rest of this year, with the worlds production now largely locked in.

The one piece of potentially bullish news, is the BOM prediction of a La Nina event over the summer. They are predicting that this event will be weak, and likely to lead to heatwaves in eastern Australia as opposed to the usual La Nina effect of wetter conditions. Typically, a La Nina event can cause dry conditions in the US cropping belt (see map), however is unlikely to have a significant impact unless it continues through into our Autumn.

The local harvest is not without its issues, we have seen hail in Esperance & rain in SA/VIC challenging farmers patience. The pricing around the country has flatlined, with little in the way of movement since the beginning of November (figure 2). Interestingly, the major frost event in the western districts of Victoria has had little in the way of impact on the Geelong price. The question will be whether there is enough grain to avoid a price rise, or is the trade underestimating the impact?

The Russian crop continues to place pressure on the wheat market, with black sea origin wheat winning nearly every tender since September. In figure 3, the wheat production from Ukraine, Russia and Australia are plotted since 1988. It is clear that the advancements in the Russian crop through a combination of opening new land, agronomy and technology have led to a stratospheric rise in production.

It is growing, but is it also glowing? It was revealed that a radioactive substance ‘Ruthenium 106’ had been detective in the Ural Mountains at 1000 times higher than normal levels. This indicates the likelihood of an incident at a Russian nuclear facility. It is expected that although high levels, that it is not at the degree to impact lives. There were rumours of traders covering short positions, as this news developed. However, it is unlikely that this event will cause a huge impact to the Russian grain machine.

Here’s a joke for the weekend:

What did the nuclear physicist have for lunch?

Fission chips

I don’t envisage the market reacting to the Russian radiation story, so I wouldn’t be hoping for a price rise based on this.

The futures market is likely to continue treading water next week, as there are limited drivers in the market. At a local level basis levels remain small, but there could be potential for price rises in Geelong as a result of the realisation of the extent of the frost damage in the Western Districts.