Month: October 2018

Where are the Victorian lambs?

Reduced lamb throughput across all states this week saw prices rise across the board for sheep and lamb markets. The Eastern States Trade Lamb Indicator (ESTLI) demonstrated the apparent supply shortage with a 51¢ gain to see it close yesterday at 788¢/kg cwt.

The biggest drop in lamb yardings was reserved for South Australia, with a 24% decline noted in saleyard numbers this week, but all states posted a fall. The curious situation is the flat line of Victorian lamb throughput this week. This is the time in the season when numbers should normally be starting to swell (Figure 1). Victorian lamb yarding levels are running 13% below the seasonal five-year average for this time in the year and at 49,302 head, it’s a whopping 34% lower than the same time last season.

The reduced supply of lamb across the Eastern seaboard is having an impact on east coast throughput with the trend dipping back below the lower end of the normal range for the first time in over four months (Figure 2). East coast lamb yarding levels are trekking 15% below seasonal average levels and the lack of supply is evident in price activity this week.

The NLRS reported eastern states daily indicators posted price gains across all categories of lamb ranging between 25-85¢, with Heavy Lamb managing to break back above the 800¢ level to close at 825¢/kg cwt. Even east coast mutton managed to lift 14¢ on the week to close at 466¢, that’s despite sheep yarding levels on the east coast remaining elevated. Indeed, east coast mutton throughput is running 48% above the five-year average for this time in the season with NSW and Victorian saleyards the key contributors to the additional supply.

What does it mean/next week?:

The Bureau of Meteorology released their updated rainfall outlook yesterday and it paints a dire picture for November with most of the country expected to have a drier than normal end to spring (Figure 3).

If this isn’t enough to shake out any remaining lambs in the next few weeks then I’m not sure what will. Expect to see Victorian lamb yarding levels start to swell in the coming month and this is likely to put a cap on further price gains in the ESTLI for the short term.

Rain maintains price gains.

The patchy rain continued this week and so did the price rises. The Eastern Young Cattle Indicator (EYCI) is following a similar trend to last year. In 2017 the October rally lasted through until the end of the year. There is a good chance we are going to see a similar trend this year.

This week’s rain tipped the month to date total over the average for much of the northern half of NSW and south east Queensland. For cattle markets, it saw further increases. The 22¢ lift in the EYCI saw the market hit a six month high of 541¢/kg cwt.

NSW was the epicentre of the price rises, with CTLX, Tamworth, Singleton and Gunnedah all recording average young cattle prices higher than 560¢/kg cwt. It was Victoria’s turn to languish though, with Barnawatha the only yard to record a price above 500¢.

A few weeks ago, in an article on what would happen if it rained, we put the red arrow on Figure 2.  It’s nice to be right sometimes, but had export prices managed to hold their ground we’d have pegged the market for more upside. The weakening Aussie dollar hasn’t managed to support a tanking 90CL price in the US. In US terms our export beef is down 13% on this time last year.

In the West, the wet October has reached some of the south west cattle country, and we can see the impact on the WYCI. Cheaper grain also helps WA maintain a premium to east coast values.

Next week?

More rain should equal more price rises. The best forecast is for central Queensland, which should have some positive price impacts. While manufacturing beef export prices are lower than this time last year, higher value cuts seem to be maintaining good prices. The supply of finished cattle won’t improve with rain, it takes a bit longer, so we can probably expect stronger values to last until the end of the year and translate into support for young cattle.

Global beef on the rise, despite fall in Oz.

Last week the United States Department of Agriculture (USDA) released their ‘Livestock and Poultry: World Market and Trade’ report which details supply and demand figures for 2018 and forecasts for beef, pork and chicken for 2019. We’re interested in the beef side, with the USDA forecasting a global increase, despite a fall here in Australia.

The USDA has pegged 2018 beef production at a record level and expects 2019 to post yet another high (Figure 1). Growth from the world’s two biggest beef producers, the US and Brazil, is expected to push world beef production to 63.6 million tonnes, up 1.2% on 2018.

Since the blip seen in 2015, beef production has continued to grow and the fact that prices have remained relatively strong in the US is a pretty good indication that beef demand is also improving.  Stronger demand is further evidenced by rising world exports. Figure 1 also shows global beef exports reaching a record high in 2019 of 10.5 million tonnes. Export growth is being slowed to only 0.2%, contributed by the expected decline in Australian beef production and exports.

Figure 2 shows US and Brazilian beef production rising by 3% and 3.6% respectively, with most other major beef producers also increasing production. Australia is the anomaly, with beef production expected to be down 5.2%, which the US think will translate into a 7.4% decrease in exports.

Australia will remain a major beef exporter, expected to hold onto third position over the US, just (Figure 3).  The fact that a herd rebuild will see Australian beef production fall, means that there will simply be less for export.

Falling beef production over the coming year might be a bit of a concern for the Australian industry.  The USDA is expecting the growth in Chinese beef imports to continue, with a 10% increase making them the world’s second largest beef importer after the US itself. Our other major markets, South Korea and Japan, are also expected to grow imports, by 7% and 1.8% respectively. This growth is expected to be supplied by the US, with their exports growing by 2.6%.

What does it mean/next week?:

While falling beef production in Australia is good for cattle prices in the short to medium term, the fall in exports is a bit concerning for the longer term. Australia won’t be able to supply the growth in major export markets, which will obviously result in a loss of market share. Interestingly, the USDA does expect Australian production and exports to be larger than in 2016 and 2017, which might be optimistic.

Key Points

  • The USDA projects global beef production to increase to record levels in 2019.
  • Despite a drop in Australian production, the USDA forecasts global exports to be up.
  • Rising import demand from China, Japan and South Korea will see Australia lose market share.

Manna from heaven

Well it doesn’t rain grass, but it was great to see reasonable falls across much of the country this week. It’s not going to green up the pasture right away, but it was enough to get some green splashed across the weekly cattle price movements reported by NLRS as sale yard numbers remain thin for this time in the season.  

There wasn’t much of the country that didn’t get rain during the week, some unlucky spots only managed 5-10mm, but good swathes of the Eastern seaboard saw falls between 15-50mm. It was especially good to see the rainfall extend into the western regions of NSW – Figure 1.

First to show signs of green were the weekly price movement for East coast cattle with every NLRS reported category reporting a lift – Table 1. The Eastern Young Cattle Indicator (EYCI) posting a 4% gain to finished at 519¢/kg cwt. Medium Cow responding best to the damp with a 10% jump to 219.5¢/kg lwt, while Heavy Steer the least responsive managing just a 0.5¢ lift to close at 290.3¢/kg lwt.

Producers with Heavy Steers to turn off can’t be too disappointed though with finished cattle prices managing to hold firm over the past few months in the face of declining store/young cattle values. Indeed, fat cattle still managing to hold 4.6% higher than where it was trading this time last season despite the tough seasonal conditions and an indication of the tight supply facing the market.

The most recent weekly East coast cattle throughput figures showing just how tight it is now. Cattle yardings running 27% below the five-year seasonal average for this time in the year and dipping below the lower boundary of the normal seasonal range with just under 44,000 head traded – Figure 2.

Young cattle in the West managing to replicate the East coast movements with a 2% lift on the week to see the WYCI close at 569.25¢/kg cwt, while offshore markets are holding firm with the 90CL Frozen Cow Indicator steady at 553.2¢/kg CIF.

Next week

Decent rainfall continues for all the eastern half of NSW and the south east pocket of Queensland next week which will continue to provide a boost to producers in these regions, but the remainder of the country returns to falls of less than 5mm.

It’s unlikely to see the EYCI surge too far on the back of the recent rain and the spectre of an El Nino event still looms for the end of 2018, which will keep a bit of a cap on buyer enthusiasm for young cattle. Broad consolidation in prices still seem the order of the day.

A royally good down pour is the Prince-iple talking point in the market.

Grain producers in NSW and QLD have been constantly harried this season, as promising weather forecasts fizzled to nothing. So far October has received the crown for rainfall in many places which has provided much-needed confidence to summer croppers (and consumers).

The Chicago wheat market has closed the week with three straight losses. The rapid pace of Russian exports is pressuring US values (Figure 1). There were concerns throughout the past three months that Russian production would be poor and would result in export curbs. However, this seems increasingly unlikely as the estimates place the crop at either their 2nd or 3rd largest wheat crop.

It is likely that export demand will switch to the US in late 2018 / early 2019 as Russian supplies dry up.

The Russian government is also in the process of selling their stockpiles to the domestic market and have announced that they will not purchase any 2018 harvest wheat. This is not necessarily an issue for Russia at present, however, a poor 2019 will require them to enter the market to support domestic consumers.

At a local level, the recent rainfall has grabbed the attention of the trade. In the past week, many parts of NSW/QLD have received >50mm, this has provided a degree of confidence in the summer sorghum crop.

The BOM has forecast similar downpours over the next week, this will encourage paddocks with previously lower moisture profiles to support planting. At present acreage available for seeding is very high, however there are concerns around seed availability. Despite the positive outlook there is still a long way to go.

The positive sentiment led to the ASX contract sliding A$8 or 2% (Figure 2). The next month will see more surety of the crop with the full extent of the impact the dry September and frost has had on the crop will be determined. The range of estimates from the crop range from <10mmt to 16mmt, clearly a surprisingly low number will cause prices to rally.

What does it mean/next week?:

Harvest is in progress in parts of the country. The reality is that crop forecasts are a very inexact science and the reality will be unveiled when the lie detectors get into the paddock.

The big focus of the next two weeks will be whether the forecast rainfall eventuates. If realised, it will provide some comfort to summer crop producers and many grain consumers.

Pass-in rates rise as market falls

This week’s market posted a timely reminder that wool markets are not one dimensional, that is less supply does not always equate to increasing price. Supply fell and at the same time prices across the board retreated back to August levels.

The Eastern Market Indicator (EMI) fell a further 53 cents on top of last week’s 21 cents fall, to end the week at 1,991 cents in AU$. The EMI in US$ terms was cushioned to some degree by a slightly stronger Au$. The EMI dropped 25 cents to end the week at 1,405 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) lost ground, falling 76 cents or 3.5% to end the week at 2094 cents.

Sellers reacted strongly to the cheaper market, passing-in 19.4% or 7,013 of the 36,084 bales that came forward. This resulted in a clearance to the trade for the week of 29,071 bales, the third lowest sale clearance for this season. Of note was that on Thursday Fremantle passed-in 33% of all offered bales, while in Melbourne 31.6% of fleece didn’t make growers reserve on Thursday.

In Fremantle, AEX reported that grower reaction to the lower price of Wednesday resulted in 13% being withdrawn prior to sale and a further 40% of fleece lines failing to meet grower reserve.

This again produced a reduced dollar value for the week of $67.95 million, with a combined value just ticking over the $billion mark to $1.05 billion so far this season.

In the wool auction weeks since the winter recess, 370,993 bales have been cleared to the trade, 60,000 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 5,500 bales per week fewer (Figure 2).

Looking to the same sale of last season, this week’s clearance was a massive 14,000 bales fewer, and for the rest of 2017 up to Christmas, all selling weeks cleared in excess of 40,000 bales. The weekly average for this season is sitting at 33,700 and is only likely to shrink as the season progresses.

While falls were generally in the order of 1 – 2%, the outlier was the superfine end where the weight of drought-affected wool caused the 16 & 17 MPG’s to pull back 4%.

Cardings were particularly hard hit this week, Melbourne and Fremantle reported the Cardings indicator down 7.5 to 8.0%, while Sydney lost 6%.

The week ahead

The offering next week is rostered at 38,702 bales, which is most unlikely to get to the auction as growers digest this week’s market correction.

The final day didn’t provide any good news as a lead into next week, so we are likely to see a continued easing in the market as buyers try to find sustainable limits.


Rising supply but demand is matching.

Sheep and lamb slaughter has been on the rise, but so have prices. Both lamb and mutton values rallied this week with significant rain falling just as processors seem to be increasing kills and looking for stock. The question is how much further prices can go?

Meat and Livestock Australia’s (MLA) weekly slaughter data is a week old but it tells an interesting story. Lamb slaughter was down 11% on the same week last year, but sheep slaughter was up 27%.  The total sheep and lamb slaughter, shown in Figure 1, was almost exactly the same as the same time last year.

It appears the kill space is opening up again as supply improves, and there might be some money in sheep and lambs for processors again, as they are pushing prices higher.

The Eastern States Trade Lamb Indicator (ESTLI) gained 36¢ this week, rallying back to 737¢/kg cwt.  Heavy lambs are still the highest price, at 742¢.

Figure 3 shows Mutton values regaining much of the fall seen in early October. While lamb prices have never been higher, apart from recent times, mutton values were indeed stronger in December last year. This suggests mutton might have a bit further to go.

Restocker lambs had the biggest move this week, gaining 90¢ to move to 739¢. There are perhaps some restockers anticipating the rain seen this week will result in some good pasture growth in what’s left of spring.

What does it mean/next week?:

With increasing confidence and renewed restocker demand, it’s hard to see sheep prices falling.  Lamb prices might have a blip or two left in them when Victoria’s supply appears in November.  Recent forward contracts suggest we might have already seen the low, however.

Forward contracts breaking with tradition

With rising concerns surrounding the supply of finished lambs during the summer, export processors have released forward contracts. We say the forward contracts are breaking with tradition because they are pegged well above the prices of the same time last year, which they no doubt had to be if they wanted to get any traction.

The widely published forward contracts came from Thomas Foods International (TFI) who released the same prices for their Tamworth and Lobethal plants, for delivery from the start of December to the end of February.  TFI priced both crossbred and Merino lambs at levels well above the summer of 16-17, but below the recent peaks of September.

TFI’s December price for crossbreds was 750¢, rising to 780¢ in January and 800¢/kg cwt in February.  Merino lambs are 30¢ behind, and all are for 18-32kg cwt lambs.  These are extraordinary levels for lambs and will be a boon for those who can finish lambs on green feed.  For those who have to feed grain to lambs, the forward prices should be profitable, and hence this is part of the reason they are pitched there.

Over the last few years lamb forward contracts have been available for the summer, and are generally released at this time of year, and pitched close to the levels of the previous year.   The thinking is that prices are usually low in spring, and forwards around last year’s prices are generally acceptable to producers.

This year pricing forwards even at 700¢ would be unlikely to get much take up.  With spring prices sitting around 700¢, and prices over 850¢ a recent memory, few producers would be willing to accept a 650-700¢ forward price.

Figure 1 shows where the crossbred forward prices sit relative to last year, the five year average, and recent prices.  They are 12 and 28% above last year’s Eastern States Trade Lamb Indicator (ESTLI) depending on when you are selling.

Figure 2 shows the same chart but for Merino lambs.  The National Merino Lamb Indicator (NMLI) has never been above the 770¢ on offer in February.  Merino contract prices are between 19 and 35% above last year, and look like even better value.

What does it mean/next week?:

If producers are confident they’ll have lambs for delivery in the December to January period, why wouldn’t they take up forward contracts for at least some of their supply?  For it to be a costly mistake, lamb prices will have to be consistently over 800¢ throughout the summer.

While its likely lambs will get over 800¢ at some stage, having the price and delivery locked in means there will be no hanging out for better values.  For Merino lambs selling forward should be seriously considered, as higher prices are even rarer.

With forward contracts for many weeks now booked up at TFI, producers seem to have been happy to get on board and lock prices in.

Key Points

  • Lamb forward contract for summer have been released.
  • December price for crossbreds was 750¢
  • Merino lambs are 30¢ behind

More green on the map boosting restockers

Another week with some rain about and more on the forecast has cattle markets showing signs of improvement. The Eastern Young Cattle Indicator (EYCI) headed back towards 500¢, while Heavy Steers continued to show strength.

The 3.5% rally in the EYCI this week (Figure 1) looks small compared to the moves of recent years, but prior to 2015, it would have been considered massive. The October fall in the five-year average is of similar proportions to this week’s move. It’s an illustration of the volatility that historically high prices can bring.

Young cattle yardings were predictably low, as growers wait to see what the rain forecast will bring. The 12,000 head yarding (Figure 2) was up on the holiday affected yarding of last week, but still low for this time of year.

After being at inexplicably low levels last week, sitting at just 170¢/kg lwt, the Victorian Restocker Indicator rebounded back towards the NSW and QLD restocker prices, at 245¢. Queensland restockers are paying the most, with the indicator up 9¢ this week to 284¢/kg lwt.

Heavy and Trade Steers continue to lead the price charge. The heavies are expensive in Victoria while Trades are in NSW, at 525¢/kg cwt and 535¢ respectively. Finished cattle are the scarcest commodity at the moment. Normally at this time of year grassfed cattle are starting to hit the market.

In WA, the usual spring price decline is taking time to come to fruition. The lack of finished cattle and high-value beef from the east coast might be helping to prop up the grassfed cattle market in the west. The WYCI sits at 542¢/kg cwt, up 1¢ for the week.

Next week?:

There is plenty of green on the rainfall forecast map, which while not drought-breaking, will continue to see growers hold on and restockers nervous about where prices could go with a big rain. The first stop is around where prices were this time last year.

Finished cattle prices are already at last year’s levels, so don’t expect as much upside for those categories.

Supply and price respond to rain.

Lamb and sheep markets along the east coast were provided with a price boost this week as some welcome rainfall saw lamb throughput ease. The Eastern States Trade Lamb Indicator (ESTLI) climbed 3% to creep back above 700¢/kg cwt.

Price gains across the eastern seaboard were not just limited to the Trade Lamb categories. NLRS reported saleyard prices posted gains in all reported categories, apart from Restocker Lambs which shed 4% to close at 649¢/kg cwt (Table 1).

East coast mutton was the stand out performer this week with an impressive 7% rally to 411¢/kg cwt. This was quite remarkable price strength shown by mutton, considering the unseasonably high numbers of sheep presenting at the saleyard. East coast mutton throughput is running 117% above the five-year average pattern for this time of the year, with elevated numbers particularly present at Victorian and NSW yards.

In contrast, the east coast supply of lamb dwindled during the week to see a drop of 14% to just over 145,000 head (Figure 1). Falling NSW lamb throughput is driving the east coast figures lower with a 32% fall on the week to see NSW lamb yarding levels trending 14% below the seasonal weekly average.

Perhaps NSW producers are responding to the falls of 15-50mm noted across much of the state this week (Figure 2).

Next week?:

A similar rainfall pattern to what we saw this week is expected for next week which may continue to provide some support to prices. Although, the big increases in Victorian lamb yarding levels are just around the corner as the Spring flush gets into full swing toward late October. This will act as a reasonable headwind on prices rallying too far.

A more likely prospect would appear sideways pricing movement at current levels in the short term with a continued downward bias as the Victorian lamb numbers start to flow. Additionally, the looming prospect of an El Nino is rearing its ugly head again as the BOM now forecast a 70% chance of one developing into late 2018/early 2019 and that’s going to weigh on producers optimism to hold or increase stock levels into the medium term.