Month: March 2019

Weekly Wool Forwards for week ending 15th March 2019

The forwards market picked up ever so slightly from last week with two more trades, but it is still somewhat muted when you look at the last few years for March. It is interesting to see large price differentials in the same Micron category in relatively short time intervals in the forwards market; this could indicate some panic in a falling market or in confidence that the market will continue to fall.   

In the fine wool category, two trades were dealt for 19 Micron, one in June for 2250¢ and the other in September for 2225¢.

In the medium wool category, four trades were dealt for 21 Micron. The earliest was for March, and that was agreed at 2270¢. The latest was for October and agreed at 2115¢. The inbetweeners were for May and September and agreed at 2230¢ and 2130¢ respectively.

This week we have seen the Aussie Dollar regain some of the ground it lost at the tail end of last week. It now hovers around 70.7¢, an average value for the last 3 months. Auction levels have cooled again, but prices are still historically good.

Slaughter and supply in elevator highs

Elevated sheep slaughter continued to drag on mutton prices this week across the East coast and, while sheep supply in NSW is running at levels similar to what we saw this time last season, it is interesting to note that Victoria has seen a significant lift in sheep slaughter rates since the start of 2019 compared to the first few months of 2018.

NSW sheep slaughter levels have been averaging close to 57,100 head per week since the start of the season, only marginally ahead of the 55,800 head recorded for the same timeframe during 2018. Although, compared to the five-year seasonal average NSW sheep slaughter has now had two consecutive seasons where weekly slaughter has been running nearly 30% above the five-year trend, representative of the dry conditions facing NSW producers – Figure 1.

In contrast, Victorian sheep slaughter levels began the 2018 season below the five-year average pattern, with slaughter levels not really taking off until the middle of the season. So far in 2019 it has been a robust start to sheep slaughter levels in Victoria with a weekly average of nearly 65,000 head processed. This is 31% higher than the volumes we saw slaughtered during the same timeframe last season and 26% over the five-year average trend – Figure 2.

The additional supply of mutton across the East coast weighing on prices with sheep prices 5% lower than where they were this time last year, after staging nearly a 7% decline on the week to close at 385¢.

Sheep prices not alone in the price drop this week with all NLRS reported categories experiencing a decline – Figure 3. Although, Restocker Lambs the are the only other category to be lower than this time last season – albeit marginally at 1¢ softer to close at 613¢.

The Eastern States Trade Lamb Indicator (ESTLI) performing best this week out of the NLRS reported lamb categories with only a 2.5% decline to finish at 639¢/kg cwt. Declines ranging between 3%-4% noted for other lamb types.

What does it mean/next week?:

With supply remaining elevated and not much rainfall forecast for sheep country in the coming week there isn’t a lot to inspire a price lift. Although it is worth noting that higher slaughter now will likely mean less available supply when we hit the depths of Winter so there will be plenty of time for price to play catchup then.

Insulation from overseas sensation

The wider world has seen wheat markets fall since the start of the year. Forecasts for the coming global crop look positive, which if realized will result in prices remaining low. However in Australia we are currently insulated from factors overseas.

Since the start of February the wheat market has been at the mercy of gravity. On Wednesday the market gained some ground on a short rally, however it was short-lived with futures levels falling back to 11-month lows (figure 1).

The export pace from the US has been sluggish with their pricing uncompetitive versus other origins. At the current pace it is unlikely that the forecasts by the USDA will be met prior to the new marketing season – unless record shipments are made in the next three months.

At a local level, basis levels have fallen however remain at relatively strong levels. The ‘basis’ component of a price can be simplified down to the difference between the local price and the price of a futures contract. This basis can either be negative or positive. In recent years the range has been wide with the majority of the country close to A$20 over CBOT in early 2017. The past six months has seen basis rise dramatically which has insulated local pricing from the wider world.

Many factors impact the basis level such as grower selling, domestic supply & freight costs. The basis strength this year is due to domestic supply being reduced due to drought and consumers being required to pay higher values to ensure that grain is not exported. As we move into the new season, the conditions in the next six months will determine if basis returns back to normal levels.

It’s worthwhile reading my articvle from the end of February (Don’t get caught in the basis bubble)

What does it mean/next week?:

The WASDE report will be released overnight, it is unlikely that there will be much in the way of surprises.

The real drivers in our market will come from consumers deciding if they are concerned about the recent BOM projections and whether they want to remove their price risk for the coming harvest.

StockCo, me & my bank.

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StockCo’s goal is to create value for our customers. We look to enhance the relationship they have with their current financier. This is ultimately providing them with a new pathway to increase livestock revenues. And ultimately this will help them deliver on an improved financial performance. StockCo’s facilities do not disrupt or interfere with an existing bank in terms of their security arrangements.


Buyers cautious and sellers confident

From a seller’s perspective, this wool market is almost surreal, it is a great time to be selling. However, this week buyers were wary and the market eased. Nothing dramatic but slightly cheaper none the less.

The wool producers response was to increase the pass-in rate; with prices at highest or near record levels, this seems curious, however, the risk associated in the sellers eyes is minimal. Supply into the future will remain constrained.

The Eastern Market Indicator (EMI) eased over the week, falling 8 cents by the end of the week to 2,008 cents. The Au$ was significantly weaker. As a result, the EMI in US$ terms was down 26 cents to end the week at 1,415 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) had corrected late last week and pushed even lower this week with a further 20 cents fall to at 2,157 cents.

45,130 bales were offered for sale this week, with the trade clearing 41,166. This is 3,680 less than last week, a sign of confidence from seller’s in the market moving ahead. 8.8% or 3,964 bales passed in.

In the auction weeks since the winter recess, 984,703 bales have been cleared to the trade, 190,094 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,789 bales per week fewer.

The dollar value for the week was an impressive $87.99 million, for a combined value of $2.33 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,196 per bale across all types.

Crossbred types were mostly up 10 to 30 cents, though 30 MPG were cheaper of last weeks record levels.

The week ahead

According to the AWEX roster, the next week an offering of 41,722 bales is predicted. The roster currently tips a drop with 37,630 and 37,560 bales rostered for the next two weeks.

It is difficult not to be confident going forward, any easing of the market will be met by reduced selling by growers. With supply tight this woud pose a problem for exporters and their mill customers.

Autumn is tanking time

We’ve hit autumn and cattle producers who were holding out have hit the button. Cattle supply has ramped up, as a dry summer and the spectre of a dry autumn sees the Eastern Young Cattle Indicator (EYCI) heading back toward 400¢.

It has been a week of unwanted firsts, at least in the frame of the last three years. For the first time since late 2014, you could buy restocker steers in NSW for just a smidgen above 200¢. This used to be a good price, but that was back in the noughties.

It’s the first time in 3 years that Cow prices have been below 150¢/kg lwt. If we compared to restocker steers, it’s still not a bad price. But compared to the beef they become, the 90CL frozen cow indicator, which sits at 644¢/kg cwt, cows are very cheap.

Earlier in the week, we noted the strong slaughter rates currently afflicting cattle markets. It seems it might have been even stronger this week. Heavy slaughter cattle prices started easing in line with young cattle and cows. Heavy steers lost 50¢ on average this week, the National Indicator broke through key support to hit 443¢/kg cwt this week (Figure 2).

The heavy discounts in cattle prices compared to beef left us wondering how a cattle futures curve would look at the moment.  Something like Figure 1.  Perhaps not so strong at the back end, as concerns about continued dry might see buyers unwilling to pay over 600¢. A return to somewhere near normal rainfall and continued strong export prices, should see prices head back toward 650¢.

What does it mean/next week?:

With no rain on the forecast it will be up to growers being unhappy with prices, and deciding to hold on to cattle to see prices steady.  Given the falls over the last fortnight, this might not be too much of a stretch, as not a lot has changed to see prices fall so heavily.

The big changes in wool supply continue

Low supply remains a key issue in the greasy wool market, with the uncertainty of projected production for 2019 easily leading to various views on what is likely to happen. For the supply chain this uncertainty is magnified by language and cultural differences. This article takes a look at the latest AWTA core test volumes for February.

To illustrate the uncertainty of greasy wool production, search the internet for good merino wool supply data for Russia, China and South America. You will be hard put to find up to date historical production data, let alone reliable production projections. In Australia our historical production data is excellent ( ) and while production projections are better than in other parts of the world there is plenty of room for improvement.

In Figure 1 the year on year change in volume for the past month and past three months by micron category for AWTA core test volumes (farm bales) is shown. The changes are in line with those seen since the early spring; more fine merino wool and less broad merino wool, with similar changes in the crossbred categories.

Figure 2 repeats the analysis of Figure 1 but for longer time frames. The season to date volumes for a range of micron categories is compared to the previous season and for the average of the past five seasons (all data used is July to February). The fall in broad merino volumes shown in Figure 2 is looking like it is becoming a structural change with 21 micron volumes down by 40% on the 2017-18 season and also compared to the five season average.

To summarise these changes in supply Figure 3 shows the average merino fiber diameter sold at auction for the past decade. The fiber diameter stepped down in 2012-2013 then stabilised through to 2017 roughly in the range of 19.1-19.3 micron before stepping down again in the past year. The average merino fiber diameter in February was a low 18.5 micron.

Now back to the wool supply chain. Put yourself in charge of mills which use various micron categories of wool, especially the 20-22 micron categories. What do you plan for in terms of purchases in the coming 6-12 months? Do you punt that supply will partially recover or do you assume broad merino volumes will remain at low levels? This is why uncertainty about production in 2019 is unsettling.

Key points:

  • While February AWTA volumes were “only” down by 6% the trends evident since the spring continued.
  • 20-23 micron volumes continue to be well below earlier period volumes.
  • The average merino fibre diameter reached a low of 18.5 micron in February.
  • The supply chain faces some difficult decisions in the coming year with regards to broader merino supplies.

What does this mean?

AWTA data shows a continuation of trends seen since the early spring. In many seasons volumes vary by relatively small amounts, but 2018-2019 is a season when there has been a big shift in production which will require the supply chain to think hard about supply in the coming year and seasons. The drop in the average merino fibre diameter is a good illustration of the marked change in production.

Weekly Wool Forwards for week ending 8th March 2019

The forwards market dropped off to measly pickings this week with only four trades agreed, and one of those was for coarse wool. This is in stark contrast to what we saw through February and even in comparison to last March forwards figures over the last three years.

In the fine wool category, one trade was dealt for 19 Micron in June for 2280¢. In the medium wool category, two trades were dealt for 21 Micron in June, both at 2250¢. In coarse wools, one trade was dealt for 28 Micron in May at 1,050¢.

The Aussie Dollar has come steeply down over the last two days, which would usually see more interest in the forward market from overseas buyers. Physical auction prices are still at record levels, despite cooling slightly this week. The question is whether this week is just an anomaly, or will we see less trades dealt through the rest of March, even with a correction of the AUD?

Big offering but market solid

After 8 weeks of consecutive rises in the wool market, producers responded with a large offering which resulted in a clearance to the trade of 44,800 bales.

The opening sales in Melbourne followed the weak finish in Fremantle last week. However, by the close on Thursday, it was a positive sentiment, with all centres posting gains on Thursday.

The Eastern Market Indicator (EMI) eased over the week, falling 11 cents by the end of the week to 2,016 cents. The Au$ was again slightly weaker also. The EMI in US$ terms was lower, down 10 cents to end the week at 1,441 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) had corrected late last week, so this week it lifted a further 16 cents to end the week at 2177 cents. This is now the highest level since September2018.

48,948 bales were offered for sale this week, with the trade clearing 44,846. This is 5,400 bales more than last week, a sign of confidence from buyers and a signal that growers are pleased with these levels. Only 8.4% or 4,102 bales passed in.

In the auction weeks since the winter recess, 943,537 bales have been cleared to the trade, 190,651 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 7,061 bales per week fewer.

The dollar value for the week was an impressive $99.27 million, for a combined value of $2.24 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,215 per bale across all types.

Crossbred types were mixed, 28 & 30 MPG were cheaper of last weeks record levels, while 26 & 32 MPG’s were up 10 – 20 cents.

The week ahead

According to the AWEX roster, the next week is another solid offering of 46,000 bales predicted, a big increase on last weeks estimate. The roster then drops sharply with 38 & 37,000 bales rostered for the next two weeks.

The tightening supply on the horizon should see the market activity remain robust, at least for the foreseeable future.

Pricing resisting supply pressure, but maybe more to come

The higher prices last week brought more lambs forward, and as such the rally was stifled.  With supply still running strong, it seems to be a countdown until a sharp supply shift.

Here’s an interesting stat.  Combined east coast sheep and lamb slaughter has only been higher than our most recent data for one week out of the last three years.  Figure 1 shows that was back in November.  With copious supply, prices are holding up extremely well.

Figure 2 shows the Eastern States Trade Lamb Indicator (ESTLI) and the National Mutton Indicator, and both were relatively steady this week.  With no yarding data for this week yet, we have to go off the individual yardings.  In Victoria at least, sheep and lamb yardings were both higher, as grower’s responded to the better values of the previous week.

Over the hooks prices gained ground in Victoria this week.  Average trade lamb prices gained 12¢ in Victoria, moving back to 670¢/kg cwt.  It will still take some time to get lambs in however, with many processors reportedly booked out until April.

There has been plenty of talk this week about ordinary scanning rates in NSW.  This fits nicely with high sheep slaughter, with dry ewes going to market rather than being fed more.

The question is how long it can continue.  We didn’t think it could be stronger, but the sheep liquidation this year has outdone 2018.  Does this mean the supply correction is going to be earlier and stronger?  Probably, but no guarantees.

What does it mean/next week?:

There is no rain forecast for the next fortnight.  The Bureau of Meteorology (BOM) forecast for the next three months is not very compelling either.  Whether you believe the BOM three month outlooks or not, it suggests the correction in supply, and price upside might be nearer to last year’s than first thought.