Month: April 2019

Low yarding and rain give EYCI a boost.

A combination of low saleyard volumes and rainfall have helped to shore up the Eastern Young Cattle Indicator (EYCI) this week amidst the Easter and ANZAC public holidays, which have provided limited cattle sale opportunities.

The shortened trading week due to the Easter break and ANZAC commemorations have seen EYCI eligible cattle yardings slump to the lowest weekly levels this season.

EYCI average weekly yardings have dipped to a mere 3,600 head this week, 59% below the levels seen during the Easter hiatus in 2018 and moved well below the normal range (as identified by the grey shaded zone in Figure 1). In contrast, the 2018 Easter dip toward 8,750 head, which occurred in early April, tested the lower end of the normal Easter throughput range.

The low volume of EYCI eligible cattle offered at sales this week has seen the EYCI bounce 3.6% to close at 468.75¢/kg cwt. Reasonable rainfall in southern Queensland and western NSW is boosting optimism (Figure 2).

However, it was a bit of a mixed bag for other cattle types. According to the Eastern States NLRS reported data, Medium Cow gained 9% to hit 205¢/kg lwt. In contrast, Heavy Steers eased 1.3% to close the week at 275.75¢/kg lwt.

In offshore markets the 90CL frozen cow indicator continues to push higher, reportedly cracking above 690¢/kg CIF prior to the Easter break. This is the highest the 90CL indicator has been in A$ terms since October 2015 when US demand for imported grinding beef was running red hot.

Next week

There is some follow-up rain scheduled for this week, particularly for south-east Queensland and Victoria. It is probably too early to call a start to the Autumn break in the south but it should be enough to keep cattle prices firm as we resume normal saleyard operations into next week.

A tale of two markets

Grain in Australia is a tale of two markets. The country is still in an effective drought, whilst the rest of the world is on course to produce a bumper crop. In this article, we will update on the situation with the A$ and overseas production.

The Futures market continued its downward transition this week, with the December Chicago contract down 2% since the last day of trading before the Easter break. Although the contract has marginally recovered, it was at contract lows yesterday. The contract converted to Australian dollars experienced a gain of 1% to close A$1 higher (Figure 1).

The Australian dollar has provided this gain. Australian inflation has been lower than the RBA target for the past three years. The banks are now expecting that there will be one or two rate cuts. The result has been a fall from 0.7152 to 0.7019 over the past week (Figure 2). This will likely help with those variable rates and improve our attractiveness for exports of all commodities.

The international values have taken a dive in recent weeks, as the world looks likely to produce a substantial wheat crop this year. In recent days, several bearish data points have been released:

  • Canada

The Canadians have reduced their canola acreage as a result of the continuing trade concerns with China (see here). In turn, they have increased barley by 10.2% (+662k/acre) and wheat by 3.8% (+939k/acre).

  • IGC

The International Grains Council has increased its forecasts for the global wheat crop to 762mmt, 27mmt more than last year. This leads to a year on year increase in global end stocks of 10mmt (274mmt).

  • Black sea

The Black Sea continues to perform well. The crop in Russia, Kazakhstan and Ukraine are experiencing favourable conditions with adequate soil moisture. It is likely that the Black Sea nations will continue to be the dominant export players this season.

  • Australia

Anzac day is the traditional starting point for seeding around the country. However most growing regions have inadequate soil moisture, and rainfall forecasts have tended to tease rainfall on the 14-day forecast, but not eventuated. There is substantial rainfall on the horizon, we just need it to fall.

Next week?

Pricing is a tale of two markets at present: International and domestic.

Barring any major disaster overseas the world is liable to produce a bumper crop, this will keep pricing depressed. At a local level, we are however still in an effective drought phase, which maintains our domestic premiums over the rest of the world.

Overnight the commitment of traders report will be released which will outline the sentiment of the speculators. It will be of great interest to see whether they are still holding a very bearish position.

Wool buyers fill their Easter baskets.

Seven weeks of sequential losses in the wool market have finally turned around. With the market being on recess for the next week due to the Easter break, buyers were aggressive in their attempt to secure quantity. The egg hunt hasn’t begun, but the hunt for higher yielding wools continued and these styles generally achieved larger premiums over previous weeks.

The Eastern Market Indicator (EMI) gained 7 cents on the week to close at 1,943 cents. The Au$ was stronger again this week, lifting 0.03 to finish at US $0.719. This was enough to put the EMI in US$ terms up 11 cents to end the week at 1,398 US cents (Table 1).

The Western Market Indicator (WMI) rose by just 1 cent to 2,065 cents.

There was an increased offering this week, 40,774 bales were offered for sale. AWEX reported that with the upcoming break, many sellers were keen to offload their wool. Fairly unchanged on last week, 10.3% of the offering was passed in which meant 36,574 bales were cleared to the trade. In the auction weeks since the winter recess, 1,195,101 bales have been cleared to the trade, 226,978 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,675 bales per week fewer.

The dollar value for the week was $75.2 million for a combined value of $2.765 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,056 per bale across all types for the week.

Crossbreds have continued the running streak, gaining another 40 cents for 26 and 28 micron, while 30 MPG fell 20 cents this week. The cardings indicator declined in all selling centres by 5 to 30 cents.

The week ahead

Next week there won’t be any sales due to the Easter recess. Sales resume on the week of the 29th of April where 42,065 bales are rostered for sale. The following week 26,731 bales are currently expected to come to market.

Forecasts tease but never please

The lack of rain continues to be a weight upon the entire agricultural industry. The forecasts tease moisture, but they never seem to bring much excitement. In this weeks’ market comment we look at how consumer jitters have driven the local market.

The forecast rainfall in the past month has tended to look promising but not deliver. This has started to cause consternation to everyone in the industry. The lack of rainfall has brought a decent rise in Australian values, with ASX January 2020 futures rising 4% or A$14.5/mt (figure 1). This returns the contract to levels seen in early March.

This buying by consumers is an attempt to ensure that they have some cover as we start the new season marketing period. There is still great uncertainty on how the season will transpire, however, the memory of the past year is fresh – and A$339 is more attractive than a possible >A$400.

Although still insulated from events overseas, it is important to maintain an eye on the offshore markets. The Chicago futures market took a tumble on Wednesday night dropping 3% or A$7 on the December contract (figure 2).

The fall in US values is attributed to continuing strong conditions for the US winter wheat crop, with 60% rates as good/excellent. This is 29% above this time last year and 16% on the 5-year average. This bodes well for the US crop, although seeding pace for spring crop has been hampered by inclement weather.

The Americans, however, are not alone when it comes to positive outlooks. Our Russian competitors are in good shape, with analysts predicting another high production year – at 83.4mmt. This would place the crop at the second largest and ensure another year of strong exports out of the nation.

Germany had a poor year in 2018 due to drought, however, production is expected to rebound this year with a jump of 21% to 24.44mmt.

These conditions all point towards a generally bearish tone to the international market, however at present we continue to be more concerned about the local crop.

On another note, If you are looking for something to listen to whilst seeding – give our podcast a shot:
Click here

What does it mean/next week?:
It will be a short week due to the Easter holiday and ANZAC commemoration.

It cannot be said enough that the Australian market is driven by risks of a second drought. If this eventuates then our prices will be extremely high, although that is not a great result as we will have a reduced volume to sell.

If we see an average or above average season, then we are likely to experience some downward pressure in the second half of the year.

Pre-Easter supply glut fails to dampen price

Prices for all NLRS reported categories of east coast lamb and sheep have risen from levels recorded in mid-March, despite most measures of supply reaching toward seasonal highs. Most categories of lamb are fetching over 700¢ and mutton is holding above 500¢ this week.

Since mid-March lamb throughput across the east coast has been running 18% higher than the pattern set by the five-year trend and sheep yarding levels have been more pronounced, averaging weekly levels 47% above the five-year trend (Figure 1).

A similar picture has emerged for East coast lamb slaughter with average weekly levels running nearly 14% higher than the five-year average trend (Figure 2). The higher supply is having limited impact upon prices as meat works seem to be happy soaking up the additional supply prior to the Easter period slowdown.

A summary of saleyard price movements highlights the market strength over the past four weeks in the face of the higher supply. All categories registering closing prices this week that are around 70¢ to 100¢ higher than a month ago (Figure 3).

The Eastern States Trade Lamb Indicator (ESTLI) managed a 2% gain on the week to close at 722¢/kg cwt. In the West, trade lambs managed to climb also, up nearly 1% on the mid-week price summary from Meat and Livestock Australia, but were unable to break above the 700¢ level yet at 679¢/kg cwt.

What does it mean/next week?:

Reduced sales and a lighter offering is expected as we hit the Easter lull so it’s unlikely to see prices retreat too much in the coming weeks. Although the forecast for rain into the next week is pretty light on and without a clear sign of a decent Autumn break in the south there will be limited opportunities for prices to surge too much higher.

Cattle price rally stalled and jammed into reverse.

Just when we thought the Eastern Young Cattle Indicator (EYCI) was going to break through last years’ level for the first time in over 18 months, the tap turned off and Easter arrived to disrupt the market. This week the EYCI rally not only stalled but jammed into reverse.

There is some evidence that after last weeks’ supply driven price fall, it was demand disruption which did it this week. With four kill days this week, and just three next week, it’s not surprising to see demand weaken at saleyards. EYCI yardings were down 34% and prices down 6% (Figure 1) suggesting that buyers weren’t keen on young cattle this week.

It was seemingly just young cattle which felt the weakening demand. Finished cattle prices were largely steady, ranging from an 8¢/kg lwt fall for Medium Steers to a 6¢ rise for yearling steers.

Every east coast indicator is above the levels of last year, except the EYCI. The lack of feed around and lack of rain on the forecast continues to dampen prices of lighter store cattle. Those of feeder weights are selling better than last year, but only just. The east coast feeder steer indicator is at 275¢/kg lwt, a very strong 30¢ premium to the EYCI.

A couple of interesting charts to finish.  Victorian, NSW and SA slaughter hit a three year high last week as supply continues to flow in the south (Figure 2). The rain earlier in the month saw supply ease in Queensland, but it ticked up again last week.

Next week?:

Easter is traditionally not a good time to sell cattle. This year, demand disruptions are going to be combined with dry weather and that’s not good for prices.

We’ve got around 10 days to see some sort of an autumn break on the forecast, or cattle prices might head back towards the lows of earlier in the year when markets are back in earnest.  As always, good rain will see better prices.

Pigs might fly

African Swine Fever (ASF) is the talk of the industry at present. Data out of China tends to be open to a level of interpretation and expectations are that there are higher levels of culling than government reports would suggest. In this article, we will talk about the impact of ASF on the oilseed industry.

Angus has written an article today on the potential impact of the ASF outbreak on the Australian meat industry (Read here)

At present, it is expected that 35-47% of the Chinese pig herd will be culled during this outbreak. A fall of this scale, if realized, will result in reduced demand for animal feed of which Soybean meal makes a large proportion – around 20%.

Since the turn of the century, China has become a whale in the soybean industry. In the early 2000’s they were importing <25% of the global trade in soybeans, they are now importing >55% (Figure 1).

The profit margins from a crush plant are derived mainly from the oil and meal components. If meal demand drops, their crush margins will fall and demand for soybeans will be curtailed.

The current reliance on China as a customer for the global soybean crop will make it difficult to find alternate markets if there is a sharp reduction in demand.

A good indicator of the pig industry in China is the Dalian Soybean meal futures contract. There has been a 42% drop in values from the high in October to the present day (Figure 2). This points towards a major drop in demand and corresponds with the timing of increased incidences of ASF outbreaks.

On another note, If you are looking for something to listen to whilst seeding – give our podcast a shot:
Click here

What does it mean?:

If the forecasts are realized, the demand for animal feed in China will drop drastically. This will have a flow-on effect onto the soybean market, and then onto the rest of the oilseed complex (canola/palm etc).

There will also be an impact on demand for other feedstuffs such as corn and barley. In recent times, Australia has exported substantial volumes of barley into China.

It is important to maintain a close eye on reports from China as this disease could have a major impact on the global grain and oilseed supply chain.

Key Points

  • It is expected that China is likely to lose 35-47% of its pig herd.
  • China is the worlds largest importer of soybeans.
  • Dalian soybean meal futures have experienced a sharp drop in values since the increase in the occurrence of ASF.

Weekly Wool Forwards for week ending 18th April 2019

Higher than average interest in crossbreds continued this week, a reflection of the historically good prices they are experiencing. The Aussie dollar rose on average this week and apart from the crossbreds, the forward market was quiet again.

In the medium wool category, two trades were agreed for 21 Micron wool; one for June at 2250¢, the same price for June as both trades in this category last week; and one for May, again at 2250¢.

In the coarse wool category, four trades were dealt for 28 Micron, one for November at 1,050¢ and three for April next year at 995¢.

The Australian dollar climbed to a short peak of over 72¢ this week, but has softened slightly today.

The Easter recess for the Auction market will likely mean we won’t see trades next week unless the Aussie Dollar performs backflips. The bunny trail for the forward curve is still pretty flat, so we expect egg collectors (purchasers) will continue to be happy with prices for some time.

The market is still bearish overseas

The USDA released their updated world agricultural supply and demand estimates (WASDE) report on Wednesday. As we approach the new marketing year the WASDE report becomes less relevant as the data contained within is largely set with only minimal tinkering around the edges.

The most important data in relation to wheat at this point of the year is the ending stocks. This will define the starting point for the new season, and global stocks were revised upwards. The stocks were raised by 5mmt to 275mmt (figure 1).

This is a fall of 6mmt from the previous marketing year, nonetheless global stocks remain extremely high with levels being the 2nd highest on record. The current situation points to continuing low international values for the coming three months unless disaster hits the northern hemisphere crop.

The trade has largely shown little concern to any of the data in the WASDE report with the market being relatively unchanged. The CBOT contract has been trading in a narrow range of 487-495¢/bu which equates to A$249-256/mt (figure 2).

The ASX wheat contract has lost volume in recent days, and has traded around the A$320, giving a strong premium above CBOT.

This premium is due to the uncertainty remaining with the 2019/20 Australian harvest. The BOM have released their 3-month outlook which doesn’t look great for northern NSW and South Queensland.  Nonetheless there is still plenty of time to pass between now and harvest.

On another note, If you are looking for something to listen to whilst seeding – give our podcast a shot:
Click here

What does it mean/next week?:
There is unlikely to be much movement in the international market during the next week, as there is little in the way of fresh information being released.

Key Points

  • Old crop trades at a substantial premium to new crop.
  • Basis levels are quite strong for new crop vs Dec’19 Chicago wheat futures.

In this weeks’ market commentary we take a look at the World Agricultural Supply and Demand Estimates (WASDE) report, and the lacklustre market.

Volume and lack of follow up rain weighs on market.

The Eastern Young Cattle Indicator (EYCI) eased 5% on the week to close at 481¢/kg cwt as limited rainfall and higher throughput conspired to weigh on the market. This move was mirrored across the broader national cattle market, except for the Medium and Heavy Steers.

Improved young cattle prices during late March/early April have seen yarding levels of EYCI eligible cattle lift 42% from averaging over 14,300 head per day last week to 21,250 this week. The result of the increased volume pressured the EYCI to ease 5% after peaking at 507¢ last week (Figure 1).

Improved prices were not the only attraction drawing out young cattle though as limited rainfall across the country this week (Figure 2) saw the daily EYCI cattle yarding reach a peak of 23,803 head on Thursday. This was the highest daily throughput level recorded so far this season.

Higher saleyard volumes on the back of the limited rainfall hampered other east coast categories of cattle with falls in the week between 5¢-15¢ noted. National Heavy and Medium Steers were two of the few categories managing to gain on the week to close at 275¢ and 282¢ liveweight, respectively.

The Bureau of Meteorology released their mid-month preview of the three-month climate outlook on Thursday for the May to July period. The picture of a 50/50 chance of a wetter or drier than average rainfall pattern remains in place, albeit with an increased chance of slightly drier than normal trend for southern Queensland and a wetter prospect for southern WA (Figure 3).

Next week

The only significant rain for the nation next week is scheduled to fall in Western Australia so there will be limited opportunity for East coast cattle prices to recover. Expect further consolidation for the short term as robust beef export prices and healthy processor margins will keep buying support present on price dips, while lack of rain will continue to be a headwind on prices racing higher.