Category: Market Analysis

All red for sheep and lamb

Posted on by Caitlin Dearden

Seeing all red on the Eastern States Daily Indicator Report for weekly sheep and lamb movements has been a rare occurrence recently.  This week finally saw enough stock come to market to send prices lower.

Week on week falls in sheep and lamb prices weren’t huge, but the Eastern States Trade Lamb Indicator (ESTLI) did hit a five-month low, breaking under 800¢ for the first time since May (Figure 1).  The ESTLI isn’t far off where it was after a brief spike in October last year, but it has found plenty of support around this level.

Merino lambs were the heaviest hit in terms of falls, the east coast indicator lost 44¢ to hit 716¢.  The Merino lambs seem to be coming in NSW, where they are 707¢, while in Victoria they are stronger, at 751¢.  This is the opposite spread of trade lambs, which tells us merino lambs are flowing in NSW, trade lambs are not.

Lamb slaughter was lower last week, but that was due to a public holiday.  Slaughter is likely to be higher this week but looking at last year’s trends (Figure 2) it could gain another 10%, which would put some pressure on prices.

The weaker Aussie dollar is giving lamb prices some support.  In US terms the current ESTLI premium over last year’s low is 100¢, in our terms it’s at 125¢.  There is likely to be a downside, but we don’t think it will hit last year’s levels.

Next week.

The fortnightly Bureau of Meteorology (BOM) outlook is a bit more positive this time.  Figure 3 shows the December to February outlook, we left November out as it’s not great.  We might have to wait until the New Year to see the rain, which will bring the price upside.  In the short-term downside is more likely, but it won’t last long.

Early flush soaked up by offshore players

Posted on by Caitlin Dearden

Lamb yarding numbers are starting to climb across the east coast fueled by lifting Victorian throughput as the spring flush gets underway. However, prices are yet to dampen as a resurgence in offshore demand, particularly from China has export buyers scrambling to fill orders.

Weekly east coast yarding levels reached the highest they have been since late July jumping 26% from the prior week and is closing in on 180,000 head (Figure 1). Driving the east coast volume of lamb is the lift in Victorian numbers signalling the early stages of the spring flush.

Victorian lamb throughput is 104% up on levels from a month ago and is nearing 50,000 head per week. Despite the additional volumes most categories of Victorian lamb prices increased this week indicating demand is more than compensating for the extra supply (Figure 2).

Indeed, lamb and sheep prices have lifted across all categories reported by NLRS for eastern states indicators, with restocker lambs, light lamb and mutton leading the charge higher. East coast Restocker Lambs posted a 19¢ gain on the week to close at 878¢/kg cwt, Light Lamb is up 20¢ to 800¢ and East coast Mutton is performing exceptionally well (particularly in percentage terms gains) with a 19¢ lift to close at 605¢.

September trade exports figures give us a clue as to why lamb and mutton prices are holding up so well in the face of the start of the spring flush. This is particularly true for flows going to China to fill the protein void created by the African Swine Fever (ASF) epidemic. Mutton flows from Australia to China have increased 208% from July to September and year to date Chinese demand is running 108% above the five-year seasonal trend (Figure 3).

Next week

The strong resurgence in offshore demand for Australian lamb and mutton product is timely given that throughout volumes are set to extend higher as we proceed through spring. The big unknown is how large the appetite from China will grow as we head toward the end of the season.

There is a good chance that an ASF led lift in Chinese demand for mutton and lamb, over and above the normal spring increases in Chinese trade volumes, will see prices underpinned throughout the next few months. This will limit the depth of the traditional spring flush price decline.

It’s a rollicking ride for wool

Posted on by Caitlin Dearden

It concerns me that we are starting to get accustomed to the “roller-coaster” ride that has become the wool market. The wild fluctuations are causing sellers a headache, deciding whether to sell, pass lots in, withdraw or wait.

We can only guess what this is doing to the exporters and processors, as they manage supply requirements alongside the unpredictable price movements of recent months. It is hard to imagine anyone is pleased with the recent volatility and it must be damaging the wool markets reputation internationally.

The Eastern Market Indicator (EMI) rose 32 cents or 2.1% (after losing 97 cents or 6% last week), to close at 1543 cents. The Au$ also rose to US $0.675. This saw the EMI in US$ also improve 26 cents to end the week at 1041 cents.

The Fremantle sales also fared well, with the Western Market Indicator recovering 43 cents of the  92 cents loss of last week to close at 1,653 cents. Again a small offering selling just 6,245 bales with a PI rate of 13.1%, modest compared to last weeks 40.8%.

Sellers reacted in what has become their normal response by “selling” into the rising market. The National Pass-in (PI) rate was 7.6%, compared to 33.4% of last week. AWEX reported that in response to last weeks big falls, growers withdrew large volumes prior to sale. For the week 4,620  bales were withdrawn.

A decreased offering of 28,149 bales came forward, with 26,015 bales cleared to the trade (Figure 2). There have been 116,533 fewer bales sold this season compared to the same period last year. This is an average weekly gap of 9711 bales.

As reported this week by Andrew Woods on Mecardo (view here), fine Merino prices have been under pressure from increased supply during the past 12-18 months, which has resulted in premiums shrinking to very low levels. As the fibre diameter approaches year earlier levels and then starts to increase, the supply of fine wool will steady and then begin to fall. This will reduce downward pressure on fine wool premiums. The reverse process, to a certain extent, will apply to broad Merino wool.

The dollar value for the week was $45.83 million, for a combined value so far this season of $512.71 million, and a bale average value $1,730.

While last week the Cardings indicators held against the tide, this week they were cheaper across the board, averaging a fall of 20 cents. The news from the Crossbreds types was that the 26-28 MPG’s improved, except for poorly prepared clips which were cheaper or were passed-in.

Next week an offering of 40,056 bales are rostered.

To continue to predict the market movements in this climate is a bit like following the formline of “The Wallabies”, you don’t know what you will get until the day. The long decline in wool export volumes should begin to play on processor inventories (assuming sales are continuing), so we will go for the market to continue on an improving trend for next week.

Delayed planting leads to delayed harvest.

Posted on by Caitlin Dearden

It’s roughly four weeks until harvest starts in earnest. We will then truly get a good indication of how much the crop has fallen since the ABARES report in September due to frost and continued dryness. In the US, delays to harvest are causing concerns with Jack Frost on his way to their northern crops.

Over the past week, the ASX market has traded marginally higher (+A$1.5). The trading range has been narrower than the Moffat Star hotel (see link), with a range of A$356.50 to A$358.50.  We are only four weeks away from the bulk of harvesting commencing, and volatility is likely to return when the crop starts to get reaped.

Whilst ASX has largely flatlined, the December wheat contract has gained some ground. Week on week the contract is up A$6.

A plethora of trade analysts are expecting both the corn and wheat balance sheet to be trimmed in the overnight WASDE* report. This has resulted in gains this week, which are welcome news for producers. It must be noted that trade analysts also predicted bearish reports in July, August & September.

Another factor contributing to the improving pricing scenario for US futures (Corn, wheat and beans) is forecasts of poor weather (see map). Our regular readers will be aware of the poor planting conditions which lead to delays. The delayed planting is leading to delayed reaping, which with cold weather on the way is at risk of being damaged by frost (and snow).

*This week’s weekly comment was written prior to the release of the WASDE. My thoughts on the report will be included in the Commodity Conversation podcast.

Next week:

We expect that Australian production will be revised down from 19mmt to 18mmt, to reflect the poorer conditions since the start of September.

It will be interesting to see if there is any damage caused by this cold snap in the northern states, as this could provide the impetus for a further increase in overseas futures.

Do we need a long moratorium?

Posted on by Caitlin Dearden

The Department of Agriculture is taking submissions until October 28th that will help determine the future regulation of the live sheep export trade, including the proposed moratorium during the northern hemisphere summer. 

Analysis of seasonal live sheep mortality rates is presented in Figure 1. It shows the average monthly trend in mortality, the normal range (grey shaded zone) and an extreme boundary (upper and lower red dotted lines).

Traditionally the northern summer period (July to September) can see mortality peak. However, during the 2018 season the trade was suspended during this time resulting in no recorded mortalities from July to October. Interestingly, changes to shipping practices, such as reduced stocking densities, have seen much lower than average mortality rates outside the moratorium period for the later stages of 2018 and the first half of 2019.

Given that the usual peak in mortality occurs during the July to September period we assessed the impact on historic mortality rates for the 2005-2017 period if a moratorium had existed during these seasons.

Figure 2 highlights the rolling 12-month trend in mortality rates which shows the actual historic trend with the trade operating all year, unhindered (green line). Overlaid on the chart is the trend with July to September mortality rates excluded (orange line). Clearly, there is a reduction in mortality rates when the three-month moratorium exists. However, this moratorium comes at a cost to the viability of the industry, the supply chain and regional communities that rely on the trade.

To quantify the magnitude of the reduced mortality rates under the proposed moratorium, and to assess the potential impact of shorter moratorium periods we analysed the average long-term mortality figures based on a range of scenarios – Figure 3.

If you want to have your say on the impact of the moratorium make sure to submit a response to the Department of Agriculture discussion paper on the live sheep export trade here, before the 28th of October deadline.

What does it mean?

During the 2005 to 2017 period when the live sheep export trade operated without a moratorium the long-term average mortality rate was 0.80%, which equates to 400 sheep per shipment of 50,000 head.

Placing a moratorium only during August saw the long-term mortality rate decline to 0.75%, or 375 sheep out of a total of 50,000. A two-month moratorium, during July to August or August to September resulted in a 0.73% mortality rate, or 365 sheep. A three-month moratorium from July to September shows the mortality rate drop to 0.71%, which is the equivalent of 355 sheep out of a shipment of 50,000 head.

In terms of sheep survival, the difference between a one-month moratorium and a three-month moratorium is 20 sheep. The big question for our legislators is what is the cost of a three-month moratorium across the supply chain when you consider shearing teams of ten staff without work for a quarter of the year, small family business transport operators with 25% less work or feed suppliers with 30-40% less revenue?

Key points:

  • Changes to shipping practices during the 2018 season have seen live sheep export mortality rates reduce significantly, even accounting for the moratorium periods.
  • Long term average sheep mortality rates for the 2005-2017 period when no moratorium was in place were recorded at 0.80%, or 400 sheep out of a shipment of 50,000.
  • In terms of sheep survival, the difference between a one-month moratorium and a three-month moratorium is estimated at 20 sheep per 50,000 sent.

A new record for the 90CL

Posted on by Caitlin Dearden

Cattle markets continued to track sideways this week, with very little in the way of major movements in most indicators.  We did see the Bureau of Meteorology (BOM) update their three month outlook yesterday, which is a little more promising, but not much, while the record for 90CL to the US was finally broken.

The 90CL indicator has been creeping towards a new record high over recent months, and it finally broke through last week.  In Aussie dollar terms the 90CL hit 750¢/kg swt, moving higher than the September 2015 high (figure 1).

The driver was values in US terms, with US buyers apparently unable to get product from New Zealand.  This put Australian processors in the driving seat, and able to negotiate values higher.

East Coast cattle slaughter didn’t seem to take a breather for either the AFL or NRL public holidays.  Cattle slaughter did fall slightly from the second last week in September, but it remains above most weeks since mid-June.  Cattle slaughter is well above this time last year, and looks like it will remain there.

Heavy slaughter continues to be counterbalanced by strong export demand.  Figure 2 shows the Eastern Young Cattle Indicator (EYCI) continues to move sideways, defying dry weather and plenty of cattle on the market.

It was this week last year the EYCI took off with some rainfall improving conditions.  It is hard to see a similar rally at this stage, with little rainfall on the short term forecast.

Next Week.

Record export beef prices are no doubt supportive of cattle prices, but it will take rain to see a significant rally.  Figure 3 shows the BOM 3 month outlook released yesterday.  There is a lot less brown than the last forecast, but key cattle areas are forecast to remain drier than normal.  But on the positive side, a 30% chance of above median rainfall means there is a 30% chance of a solid price rise in the next 3 months.

A tale of two yardings

Posted on by Caitlin Dearden

It was the best of yardings, it was the worst of yardings… well not quite (and excuse the Dickens pun), but in recent weeks we have seen cattle yarding levels diverging between the East and West coast with the differing supply levels flowing through to the respective cattle price sentiment across most cattle types this week in each state.

East coast yarding levels have been easing in recent weeks, slipping 30% since mid-September to see it back below seasonal average levels for this time in the year – Figure 1. Cattle price across the eastern states has responded in kind to the lower volumes at the sale yard with most NLRS reported categories posting price gains this week, although the magnitude of the gains wasn’t excessive.

Feeder steers were one of the better performers with the east coast indicator lifting 6¢ on the week to close at 284¢/kg lwt. Feeder steer prices lifted across all states except for Victoria where prices took a bit of a tumble, down 20¢ to close at 254¢/kg lwt.

Across in the West cattle yardings have been demonstrating the opposite trend to the eastern states with throughput up 26% since mid-September and trend at the upper boundary of what is normal for this time in the season and 21% above the average seasonal trend – Figure 2.

The higher cattle volumes in WA is putting pressure on prices there this week with declines of 5¢-40¢ noted across most reported categories, except for WA Feeder Steers. The WA Light Bull indicator easing the most to see a 39¢ decline to 215¢/kg lwt. WA Feeder Steers the standout performer with a 26¢ gain to hit 325¢/kg lwt and placing it at the highest Feeder Steer indicator across all states.

In offshore markets, the 90CL frozen cow indicator continues to surge pushing above 740¢/kg CIF and just 4¢ shy of the record high achieved during September 2015 – Figure 3. Underpinning the elevated 90CL in the US is limited imported supplies as product from NZ and Australia continue to be diverted to China to satisfy the growing protein void associated with the spread of ASF and the impact on Chinese pork production.

Next week

Strong export prices and healthy beef processor margins should continue to support cattle prices domestically into the coming weeks. Short term rainfall forecasts show falls limited to eastern coastal regions in southern Queensland, eastern NSW and southern Victoria but won’t be enough to push cattle prices higher in any significant manner. Sideways price consolidation is expected for the near term.

Weekly Wool Forwards for week ending 4th October 2019

Posted on by Caitlin Dearden

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.

Cattle in a holding pattern

Posted on by Caitlin Dearden

Cattle slaughter ticked up last week, but prices continued to track sideways.  The market seems to be in a holding pattern in the east, while the WA premium remains strong.

Just when we thought finished cattle supplies were heading for their spring lull, Victoria and NSW found more cattle, pushing slaughter back to a two month high last week.

Figure 1 shows east coast cattle slaughter at 153,000 head, driven by NSW, which had its second largest week of the year.  Victoria also had a strong rally in yardings, but at 27,000 remains small on the national scale, and relative to earlier in the year.

Figure 1 shows cattle slaughter is still tracking above last year’s level, and it’s not too much of a stretch to say the herd remains in liquidation mode.

In contrast, young cattle supplies have been on the decline.  Figure 2 shows Eastern Young Cattle Indicator (EYCI) dipped back to 12,533 head on Thursday, the lowest full week level for the year.  Southern Queensland was the driver in the lower yardings, with the Roma Store and Dalby markets both falling 40%.

The slight rise in the EYCI (figure 3) was more driven by a shift in weightings than any real increase in price.  Wagga was the biggest yard this week, with 13% of the EYCI, and it was priced at 539¢, while Roma, which fell from the top spot was at 470¢/kg cwt.

Over in the west cattle prices are similar to southern values.  The Western Young Cattle Indicator (WYCI) rallied strongly to 551¢/kg cwt, and is close to over the hooks values.  Historically this is a very good price as we approach peak supply season in the west.

Wool re-discovers its mo-jo

Posted on by Caitlin Dearden

This week the wool market opened strongly in the three selling centres, posting gains across all MPG’s of up to 100 cents. Again, the medium merino types found the strongest price increases, although any “Good style” wools with high N/Ktex in the fine types were also highly sought.

By the week’s end 18 MPG in Melbourne had improved 40 cents, 20 MPG 100 cents, and the Cardings indicator were again above 1,000 cents across all centres. A strong result across the board.

The Eastern Market Indicator (EMI) lifted 67 cents or 4.2% for the week, to finish at 1,542 cents.              The Au$ fell slightly to US $0.676. This saw the EMI in US$ also lift by 40 cents to end the week at 1,087 cents.

Western Australia performed strongly on the opening day posting some significant gains which continued in the early part of Thursday. Of concern though, was that AWEX reported that the “fleece market noticeably softened” toward the end of the week. This resulted in falls of 30 – 70 cents on the day, however over the week the Western Market Indicator rose by 59 cents to close at 1,702 cents.

Sellers reacted to the improved market with the National Pass-in (PI) rate for the week 7.6%. Of interest is that the PI rates plummeted this week to 3.0 & 4.0% in the North & South respectively, recording the lowest rates for the past 3 months. It was a different story in W.A., for the week almost 20% was passed, and on Thursday in the softer market, this figure touched 30%.

When looking back we note that while the EMI is currently at 1600, in May the EMI was 1900 cents with a PI rate at 20%. It seems seller expectation has moderated.

27,458 bales were offered to sale with 25,384 bales cleared to the trade (Figure 2). There have been 102,483 fewer bales sold this season compared to the same period last year. This is an average weekly gap of 10,248 bales.

The dollar value for the week was $47.35 million, for a combined value so far this season of $424.93 million.

The week ahead

Next week a larger offering of 40,999 bales are rostered, falling back to around 30,000 in subsequent weeks.

The market appeared to have shaken off its doldrums retracing 64% of its August fall. We have concern though about the weaker market in Fremantle at the end of the week. The increased offering and soft finish this week will be causing stress to buyer & sellers regarding next weeks market.