Category: Lamb

Back to hushed tones and whispers in the forwards market this week, as only two trades agreed.

One trade was dealt for 21 Micron wool and agreed at 1,680¢ for later this month. One trade was dealt for 28 Micron wool and agreed at 920¢ for November.

With the auction spot-price yoyo bouncing so frequently and significantly, it’s difficult to know at what level things will settle, though, looking over the longer term, at least some sideways movement is evident. With a slim auction market, a good picture of average agreed trading price in any MPG becomes difficult. In addition to that, the more producers open themselves to risk by not posting their price, the broader the average gap between post and settle, due to the uncertainty that comes with slim pickings.

Earlier in the week we took a look at beef export flows out of New Zealand, and the impact increased Chinese demand was having on markets.  Chinese demand for lamb and mutton has also been on the rise, and it’s an opportune time to look at how New Zealand is faring on this front.

New Zealand is Australia’s only real competitor in lamb export markets, and as such it’s worth checking in on how their exports are tracking.

China has traditionally been a large market for New Zealand.  For the year to date New Zealand has exported more than twice the amount of lamb to China than Australia has.  Over the last five years New Zealand has exported 64% more lamb to China than Australia.  Needless to say China is a major market for New Zealand.

Despite being historically strong, New Zealand’s exports to China have been even stronger this year.  Figure 1 shows that every month except May have seen larger NZ lamb exports to China, and this has seen the year to July exports up 19% on last year, and 37.5% on the five year average.

 

The increases in exports to China have not been due to stronger production.  Figure 2 shows China’s share of New Zealand’s beef exports has grown this year.  For the year to date 45% of New Zealand’s lamb exports have gone to China.  China’s share was well up on 37% in 2018 and 32% average over five years.

Figure 1 shows there is plenty of seasonality in New Zealand’s exports to China, and while this is a function of production seasonality, China’s share of exports does decline in winter.  A smaller share for China when production dips is likely due to European markets having more money.

China’s increased volume and share or New Zealand’s lamb exports has come largely at the expense of the United Kingdom.  The UK is New Zealand’s second largest export market, yet its share lamb exports has fallen from 16% in the year to July 2018 to 12% in 2019.  The US is the third largest market to NZ lamb, and managed to maintain its share at 7%.

What does it mean/next week?:

Increasing demand for lamb from China has been impacting our friends over the ditch as well.  We can see declining production and exports from New Zealand in June and July obviously helped push our prices higher.

Moving forward China will start getting more lamb out of New Zealand in November and December, and this will help keep a lid on price rises here.  However, the increasing share of lamb going to China means other markets might have to come to Australia to find their fill.

The lamb market seems to have found a level it like, but mutton continued to slide this week.  It doesn’t seem price moves were in response to supply, with demand shifts driving markets early in the spring.

The data is a week old, but east coast lamb slaughter to the end of last week saw the rise in lamb slaughter slow.  Figure 1 shows lamb slaughter still running ahead of last year, but at similar level to 2016.  Back in 2016 the Eastern States Trade Lamb Indicator (ESTLI) sat at 621¢ in mid-September.  It was a great price for the time, but now the market is 190¢ stronger.

Figure 2 shows the ESTLI has now been steady for a month despite rising slaughter levels.  This gives an indication that processors might be able to move lamb at around 800¢, and are happy to increase slaughter levels at this price.  There is a way to go in rising supply before chains are full and prices come under significant pressure.

Rising lamb supplies are putting pressure on mutton values.  The National Mutton Indicator (NMI) fell another 35¢ this week to hit a six month low.  Mutton does remain 33¢ above the levels of this time last year, but that was under very strong supply.

Prices in the west have also found a base, but at a lower level.  The WATLI gained 13¢ this week to move back to 646¢/kg cwt and not far off over the hooks quotes.  WA Mutton was also up, at 451¢ now at a much smaller discount to the east coast.

 

What does it mean/next week?:

Unless you are on the North West coast of the country the latest Bureau of Meteorology (BOM) three month outlook, released yesterday, was not very promising.  There is a less than 35% chance of anywhere on the east coast getting median rainfall from October to December.

Normally this would mean increased supply and lower prices, but the dwindling flock will mean it can’t be as strong as last year.

Futures contracts have been chugging along with eleven trades this week.

We saw one trade for 18 Micron wool, agreeing at 1,800¢ for March 2020.

For 19 Micron wool, five trades dealt. One trade was agreed at 1,755¢ for October and for November, one trade agreed at 1,720¢. Two trades were dealt for December, agreeing between 1,710¢ and 1,720¢.

For 21 Micron wool, four trades dealt, one for October at 1,620¢. One trade was dealt for January, May and June 2020 and these agreed at 1,630¢, 1,580¢ and 1,600¢ respectively.

One trade was dealt on 28 micron wool, agreeing at 900¢ for October.

Confidence continues to be evident in the forward market, even while the auction market volatility is still on the mind. Prices and interest could change in a heartbeat as the future really is uncertain.

It’s been a week of major come backs. While the wool market lift might not be the most celebrated national victory of the week, records were hit for six to make a spectacular recovery.

Goodwill discussions between China and the US on trade appear to have significantly boosted buyer confidence and resurged competition.

The Eastern Market Indicator (EMI) lifted 170 cents or 12% on the week, to finish at 1,535 cents. This correction was an all time record for the highest weekly increase of the EMI and has pushed the EMI back where it was a month ago. The Aus$ also lifted to US $0.687. This saw the EMI in US$ increase 125 cents to end the week at 1,056 cents.

Western Australia made the most staggering recovery. The Western Market Indicator rose by 242 cents to close at 1,625 cents (Figure 1). The daily gain of 198 cents was the largest increase in a day since records began according to AWEX.

All microns and types saw strong price rises but broader Merinos were most keenly saught after. 19.5 to 21 MPGS rose 175 to 305 cents across the three selling centres. Crossbreds saw further gains on last week in the order of 65 to 115 cents. The Merino Cardings Indicators also took a slice of the action, rising 90 to 185 cents on the week.

21,839 bales were offered to sale and just 6.2% passed in. This saw 20,488 bales cleared to the trade (Figure 2). There has been 94,403 fewer bales sold this season compared to the same period last year. This is a average weekly gap of 11,800 bales.

The dollar value for the week was $34.2 million, for a combined value so far this season of $330.69 million.

The week ahead

With China waiving some tariffs on US goods and the US postponing implementation of their tariff increase, both nations appear to be testing the waters ahead of face to face negotiations in October. These are positive signs for all in the wool supply chain.

This week has restored some confidence in sellers and as a result next weeks roster has increased to 31,107 bales. All three selling centres have sales on Wednesday and Thursday. The following weeks have also seen an increase in rostered offerings of 28,510 and 33,980.

Interest in futures seems to be bouncing back, with 21 trades last week and 15 this week. Crossbreds have garnered some of that attention this week.

For 19 Micron wool, five trades dealt. One trade was agreed at 1,650¢ for November. Four trades were dealt for April 2020 and agreed between 1,600¢ to 1,670¢.

For 21 Micron wool, six trades dealt, one for September at 1,650¢ and three for November with agreements between 1,520¢ and 1,535¢. One trade was dealt for both January and April 2020 at 1,600¢ and 1,630¢ respectively.

Four trades dealt on 28 micron wool, two for both November and December agreeing between 835¢ and 850¢.

It’s good to see confidence returning in the forward market. That this has come when the auction market seems to have hit its base and indeed is bouncing back seems of little coincidence.