Month: July 2018

At least lamb and mutton are kicking goals

It has been a long week for Mecardo’s resident ‘football’ nut in Ballarat, breaking up a busy week with a late night only to see the Socceroos going down two-nil. This correspondent is more interested in the local brand and is hoping the Demons can emulate the form of lamb and mutton this week, and get back on the rising trend.

We weren’t going out on too much of a limb by predicting the Eastern States Trade Lamb Indicator was going to hit a new record by the end of the week. At least it was right, the ESTLI closed Thursday at 710¢/kg cwt (Figure 1).  A couple of years ago we also predicted this but got it wrong. Demand has caught up, and supply seems to be seriously on the wane.

We have concentrated on the goings-on in the east this week, but lamb and mutton in WA have also rallied, albeit to a lesser extent.  The WA Trade Lamb Indicator (WATLI) has gained 50¢ since the end of April and while not matching the ESTLI this week, at 647¢/kg cwt it’s only a week behind (Figure 1).

Mutton is somewhat defying the live export issues in the west, with the WA Mutton Indicator gaining 62¢ in June to hit 431¢/kg cwt (Figure 2).  This is still 82¢ behind east coast values, which equates to around $16 on a 20kg cwt sheep.  The rally in east coast price might be propping up the west, as demand can draw sheep across the Nullabor.

What does it mean/next week?:

This week’s rally in sheep and lamb markets has occurred in the absence of any real rain.  We’ve had a couple of reports of the dearth of sucker lambs which normally come out of NSW at this time of year, and this is obviously helping to drive the market.

All indicators are pointing towards continued strength for sheep and lamb for the short term, and hopefully, the Demons can emulate the ovine strength, rather than the Socceroos form.

End of a memorable season for wool

The big upward move in the wool market last week and the return of Fremantle resulted in an increased offering this week, with the market easing slightly.

The end of financial year sale resulted in finer types retreating by 20 to 40 cents.

The Eastern Market Indicator gave back 17 cents over the week to settle at 2,056 cents in AU$ terms. AWEX noted this was 531 cents above the corresponding market last year, almost a 35% increase (Figure 1).

Medium wool is trading at historically close levels to finer types, with the 21 MPG in Melbourne closing the week at a record 2350 cent, just 19 cents below the 19 MPG. (Figure 2)

This lends support to the theory that while demand is strong and marketing efforts have been positive, supply is causing buyer concern.

The Australian dollar was stable at US$ 0.73, resulting in the EMI closing slightly softer at 1,513 US cents, US$0.13 below last week.

Despite the record levels, growers lifted their Pass-In rate to 6.1% (last week 2%) which meant 29,830 bales were cleared to the trade.

To summarise the year, 1,803,594 bales were offered, 48,000 more than last year, with Melbourne offering 60,000 more, Sydney up by 16,000 and the Fremantle offering 29,500 fewer.

This resulted in $3.434 billion turnover for the year, while the average number of bales sold per week has been 39,253.

The week ahead

Next week is the first sale of the new financial year and all 3 selling centres are selling. A much larger offering of 43,232 bales are rostered for sale.

This will test the market however the recent trend of growers being prepared to Pass-In wool when the market eases should provide support.

We have lift off.

The wheat market is firing on all cylinders. We are going to the moon. The pedal is to the floor. We are cooking with gas.  These are a few appropriate analogies for the market movement this week. In this article we look at the price movements in Australia and seven other markets around the world. 

The ASX east coast wheat coast contract has been on a steady climb over recent weeks however this week the market has been on fire. The price has increased a whopping $27 since last Friday (fig1). This is because of continued dry conditions on the east coast in conjunction with the flow on effect from the wider worlds woes.

It is a catch-22 for many, as although prices are high many are not able to take advantage due to lack of production especially in northern NSW/QLD. The high price is very unlikely to mitigate for the loss in yield. The producers in Victoria and parts of South Australia with reasonably good crops will all going well be able to take advantage of the benefit of inflated pricing.

As alluded to earlier, conditions in other parts of the world are on a downward trend. In last weeks update I mentioned that northern Europe is in dire straits. The last few days of harvesting are pointing to this resulting in Europe’s export capacity declining. This has resulted in futures around the world rising, with the majority of wheat exporters now seeing year on year declines in exportable surplus.

In the last fortnight the different wheat futures around the world have seen solid gains (fig 2), with only between 3-4 days of negative results (dependent upon bourse). It is going to be an interesting month as we gain more resolution on the northern hemisphere crop.

What does it mean/next week?:

In Australia the lack of rainfall is likely to result in continued strong pricing well into the 2019/20 season on the east coast.

The commitment of traders report will likely see an increase in the long (bought) position in wheat by speculators. At some point they will likely want to take their profits leading to some price correction. Nonetheless the fundamentals are supporting these strong levels, especially in Australia.