Year: 2018

Yarding boost provides headwind on prices.

The recent rain has provided a lift to cattle prices last week across the East coast and producers responded this week to the improved prices with increased offering at the sale yard. The extra numbers putting a bit of a dampener on the rally for most categories of cattle.  
The Eastern Young Cattle Indicator (EYCI) eased 1% this week to close at 535.25¢/kg cwt. Given that yarding of EYCI eligible cattle was up 40% on last week’s figures the magnitude of reduction in price isn’t too bad. EYCI eligible cattle averaged 18,636 head per day this week compared to the 13,303 head seen last week and yesterday saw the first yarding in excess of 20,000 head since July.

Across the Eastern seaboard cattle prices eased between 1-9% for most reported categories with Heavy Steers the only group to manage a slim price gain of 0.8% to creep back above 300¢/kg lwt – Table 1.

Increased yarding levels the likely culprit for the stalled rally with East coast throughput returning to average seasonal levels this week to see a 39% lift in numbers on the previous week to see nearly 49,000 head change hands at the sale yard – Figure 1.

Domestic and offshore prices have converged in recent weeks with the recent rain providing a boost to the EYCI. Improved demand for grinding beef from US buyers has seen the 90CL gain 1.3% to close at 555.4¢/kg CIF.

Next week

Further rain is forecast for much of the country next week, although it is a bit light on for Queensland and WA with less than 10mm anticipated there. The big falls (15-50mm) are reserved for NSW, SA, Tasmania and Victoria.

Expect the EYCI to hold its ground this week given the rainfall forecast and potentially probe a bit higher toward the 550¢ level to bring it more in line with the 90CL and young cattle prices in the west.

Tide turns for wool

If last week was bad for wool prices, it turned out that it was only the start of the fall. This week, no segment was spared, and the full force of the correction was felt causing the market to fall dramatically.

The Eastern Market Indicator (EMI) fell 96 cents on top of last week’s 53 cents fall, to end the week at 1,874 cents in AU$. This is the lowest close since May. Despite the Au$ easing almost ¾ of a cent, the EMI in US$ terms was also hit hard, dropping 78 cents to end the week at 1,327 US cents (Table 1). The last time the US$ EMI closed below 1,350 was December 2017.

In Fremantle, the Western Market Indicator (WMI) lost ground, falling 61 cents on the back of last week’s 76 cents fall to end the week at 2033 cents.

Again, sellers adopted a strong position to the falling market, passing-in 23.6% or 8,150 of the 34,522 bales that came forward. This resulted in a clearance to the trade for the week of 26,372 bales, the lowest sale clearance for this season.

This again produced a reduced dollar value for the week of $57.23 million, with a combined value just ticking over the $billion mark to $1.10 billion so far this season.

In the auction weeks since the winter recess, 397,365 bales have been cleared to the trade, 76,273 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year continues to grow and now sits at 6,356 bales per week fewer (Figure 2).

The market peaked in August when the EMI topped out at 2116; since then the retracement has been of the order of 11%, while the 19 MPG has pulled back 9%. The last 2 weeks have been terrible for the wool market, almost 30,000 bales fewer sold compared to year-on-year figures, and the EMI has lost 7.8%.

For the second consecutive week, the superfine end has been hit hard, as the weight of drought-affected wool has caused the 16 & 17 MPG’s to pull back 15% from the August peak. Cardings fell out of bed this week losing a massive 11% in Melbourne and have come back from their August highs by 26%.

The week ahead

The offering next week is rostered at 40,000 bales; this week 7% of the rostered offering was withdrawn prior to sale so its most unlikely this number will get to the auction next week.

As buyers try to anticipate the bottom of the market, the uncertainty doesn’t give much confidence that the market will stabilise next week.

The hunt for the red October.

This week the market continues its volatility with prices falling globally and domestically. The main factors driving the market into the red has been the Russian crop beating initial expectations and reducing the likelihood of export curbs.

The Chicago futures market has ended the week on a low note. The past week has seen futures fall A$12 since the close last Thursday (Figure 1). The trade is concerned about the increased expectations of the Russian crop and decreased exports in the US. The fall in the overseas market will certainly impact local pricing. The low expectations of Australian exports will, however, be limited, as local drought factors dominate.

Throughout the past few months, there have been concerns related to this seasons wheat crop in Russia. There were headlines discussing the huge drop in production (>15%) year-on-year. Throughout the year we have urged caution, as this number is from the record production year.

The crop has performed above many expectations and is now projected at between 70-72mmt, this is the third largest crop (Figure 2). It is important to remember that although this crop is 15% lower year on year, it is 26% above the average.

At a local level, the ASX contract has lost steam, with January 2019 falling back 3% or $20 in the past week (Figure 3). The strong potential for the summer crop has given buyers some confidence and many are selling their long positions at what are historically high levels.

In recent days, there have been frosts in the western districts of Victoria, the last region of mainland Australia with a decent crop. It is too early to determine the extent of any damage, but in impacted regions, it will reduce the likelihood of any further growers selling whilst the risk is assessed.

The week ahead

The trade will be assessing the progress of harvest as we move into November. It will be interesting to see if grower selling places pressure on basis.

There is more rain expected in the north which will further assist the summer crop. Let’s just hope that the good fortune continues.

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.