Month: June 2020

Sheep and lambs “stay home”

One could be forgiven for thinking that sheep and lambs were on paddock lockdown last week based on the saleyard throughput figures. Weekly east coast lamb yardings were already tight for this time in the season, but last week reached a low that pre-dates Mecardo’s records.

East coast lamb yardings were 79% below the five year average trend at just 39,798 head (Figure 1). We’ve been looking at the 2011 season as a reference point of how supply played out during a rebuild. However, last weeks throughput suggests that we might be reaching into new territory. The low in 2011 still saw 70,000 lambs pass through east coast yards and this was during a week of Easter disruption.

The story was much the same for sheep yardings. East coast sheep throughput fell 66% from the week prior and was 83% below the five year average trend (Figure 2). Zoning in on the various states and it was clear who drove the dramatic fall in yardings. New South Wales combined sheep and lamb yardings were 89% below the five year average, while Victoria wasn’t far behind at 69% below the average trend for this time of the season. Recent rain in these regions appears to be adding more optimism to the outlook and incentivizing producers to hold onto stock.

Sheep and lamb slaughter volumes saw little change from the week prior. Weekly east coast sheep slaughter remains at 53% below the same period last year (Figure 3). For the calendar year 2020 to April, sheep slaughter was down 25%, so the trend is increasing which is positive for the Australian flock.

All CV indicators responded to the lower supply with gains. The Mutton CV19 indicator lifted 5.3% on the week to $180/head and the Processor lamb indicator picked up an impressive 10% to $220/head. The Restocker lamb CV19 indicator also had a modest rise over the week of 3.8% to sit at $164/head on Thursday.

Next week:

The winter rainfall outlook released by the Bureau of Meteorology this week looks promising for much of the country. Tight supply is certainly here to stay. Whether last week’s slaughter and yardings figures hint at just how tight we can expect the next few months to be, is something we’ll be watching closely.

You don’t know what you’ve got til it’s gone

Key Points

As we head into June, a period of uncertainty looms. Do we see price rises as weather concerns mount, or does a large global crop hamper upside? One thing for sure is that the next two months will be volatile.

CBOT wheat futures lost steam this week but have tried to regain ground overnight. There are concerns that poor weather in Europe has hampered crop production. The December wheat futures in US$/mt have returned to the same level as last Thursday. The Australian dollar has gained ground however and is currently trading A$4 below last Thursday.

Risk management and examining prices are some of the most important factors in running a grain growing enterprise. There were fantastic opportunities to lock in high futures levels in March. The market since then has fallen from A$355 to A$291 (Figure 1).

There is always a potential for the market to rise back to those levels, but it’s always advisable to take some cover when it is available – at least for a small portion.

As a tip, it is important to ensure that you have the correct facilities available and open to use the market to your advantage. It takes time to set up the correct facilities and by the time they are in place, the opportunity may have passed. You don’t know what you’ve got til its gone.

At a local level, the ASX futures market has slightly declined, with both old and new crop pricing down around A$2/mt (Figure 2). As we draw ever closer to harvest we are likely to see the spread between new crop and old crop trend lower. There may be times when the market jumps up as domestic buyers hit the market, however, the trendline will be for that spread to narrow.

If you are holding old crop, it might be time to sell and take advantage of the remaining drought premium.

The three-month outlook for Australia looks positive (see here).

What does it mean/next week?

Next week we will be moving into June. If previous years are any indicator, we are likely to see some volatility. This could provide opportunities for farmers to increase their hedge positions, especially as good rainfall reduces potential production risk.