Category: Sheep

Supply and price respond to rain.

Posted on by Caitlin Dearden

Lamb and sheep markets along the east coast were provided with a price boost this week as some welcome rainfall saw lamb throughput ease. The Eastern States Trade Lamb Indicator (ESTLI) climbed 3% to creep back above 700¢/kg cwt.

Price gains across the eastern seaboard were not just limited to the Trade Lamb categories. NLRS reported saleyard prices posted gains in all reported categories, apart from Restocker Lambs which shed 4% to close at 649¢/kg cwt (Table 1).

East coast mutton was the stand out performer this week with an impressive 7% rally to 411¢/kg cwt. This was quite remarkable price strength shown by mutton, considering the unseasonably high numbers of sheep presenting at the saleyard. East coast mutton throughput is running 117% above the five-year average pattern for this time of the year, with elevated numbers particularly present at Victorian and NSW yards.

In contrast, the east coast supply of lamb dwindled during the week to see a drop of 14% to just over 145,000 head (Figure 1). Falling NSW lamb throughput is driving the east coast figures lower with a 32% fall on the week to see NSW lamb yarding levels trending 14% below the seasonal weekly average.

Perhaps NSW producers are responding to the falls of 15-50mm noted across much of the state this week (Figure 2).

Next week?:

A similar rainfall pattern to what we saw this week is expected for next week which may continue to provide some support to prices. Although, the big increases in Victorian lamb yarding levels are just around the corner as the Spring flush gets into full swing toward late October. This will act as a reasonable headwind on prices rallying too far.

A more likely prospect would appear sideways pricing movement at current levels in the short term with a continued downward bias as the Victorian lamb numbers start to flow. Additionally, the looming prospect of an El Nino is rearing its ugly head again as the BOM now forecast a 70% chance of one developing into late 2018/early 2019 and that’s going to weigh on producers optimism to hold or increase stock levels into the medium term.

Support emerges for the wool market.

Posted on by Caitlin Dearden

It seems that Fremantle was the “canary in the mine” last week. We reported that the market appeared to find support in WA late on Thursday and this translated into a stronger market this week.

The Eastern Market Indicator (EMI) picked up 31 cents for the week, settling back above 2,000 cents again, to end the week at 2,023 cents in Au$. The EMI in US$ terms was not quite a strong with the market receiving some benefit from Au$ movements, posting a 20 cents improvement to finish at 1,430 US cents (Table 1).

Last Thursday, Fremantle provided the confidence into this week. It also continued this trend to see the WMI gain a further 38 cents to end the week at 2,170 cents.

With a resurgent market, the Pass-in rate dropped below double-digit figures, with 7.4% of the total offering passed. This resulted in a clearance to the trade for the week of 29,709 bales, with 2,363 bales passed. There was a reduced dollar value for the week of $68.74 million and a combined value of $982.58 million so far this season.

In the nine auction weeks since the winter recess, 341,922 bales have been cleared to the trade, 46,600 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 4,660 bales per week (Figure 2).

Strongest demand this week came for 18.5 and broader types, with 21 & 22 MPG in Melbourne lifting almost 100 cents. There was a large offering of fine tender wool which struggled to attract sufficient demand and weighed down the fine wool market.

As noted in the Mecardo article, Fine wool volumes rising, the drought will increase this sector of the market and at the same time reduce the volume of broader types. We are seeing this play out in the market now, impacting & driving price movements.

An increase in fine Merino volumes has been anticipated due to the dry conditions in eastern sheep regions. This is starting to happen in earnest now, as the production from the higher rainfall regions in eastern Australia (which is finer to begin with), shows the effect of drought. This trend in supply will persist through to at least mid-2019, therefore the downward trend on fine wool premiums will persist for the same time.

Crossbreds prices remained firm, but it was noted that the better-prepared wools performed well while poorly prepared clips struggled with a much higher pass-in rate.

Cardings produced a mixed bag, cheaper in Melbourne, dearer in Fremantle and no change in Sydney.

The week ahead

Next week a slightly larger offering of 37,644 bales is rostered, and with Fremantle again providing a solid finish to the market we should see some level of support for the market.

The next 3 weeks have rostered 37k bales, and while the spring shearing is causing a slight increase week on week, it will be down around 20k on the same period last year.

 

Lighter Merino wethers looking profitable – if you’ve got feed.

Posted on by Caitlin Dearden

It’s the time of year when Merino lambs from the Riverina and Western NSW start to hit the market. To date, these lambs have been selling well, given the seasonal conditions. We may see the market kick in the coming weeks and as such it’s worth looking at probable and possible margins on buying, growing, shearing and selling these lambs.

The best place to get an idea of Merino wether lamb prices is on AuctionsPlus. While there are store sales throughout the Riverina, AuctionsPlus (AP) gives us a weekly prices series as well as weight and descriptions which we can compare to finished lamb prices reported by Meat and Livestock Australia.

Figure 1 shows that there is plenty of variability in the AP price. Given most lambs on AuctionsPlus are sold on property, the location of the sale can have a bearing on the price, as can the weight of lambs. The data used here included lambs from 19 to 55 kgs liveweight.

The last month has seen the Merino wether lamb price lift strongly. The average price has gone from 250¢ to over 300¢, an increase of over 20%. Wether lamb prices aren’t quite at the highs seen in January this year, or May 2017, but given the seasonal conditions, they are pretty good.

Part of the reason for the lift in the ¢/kg rate is a fall in the average weight. The dry year has seen average lamb weights on AP fall to 27kgs, from 32kgs in 2017 and 37kgs in 2016. Buyers are getting lambs at much cheaper dollar per head rates and as such, are prepared to pay more in ¢/kg.

So is there any money in buying Merino lambs?  Surely with the wool price in the 99th percentile we can turn a buck on buying Merino lambs. The gross margins look good, but costs this year could be high (Figure 3).

Wool prices for 19 micron can be locked in at 2200¢ /kg clean for December/January and with a cut of 2.5kgs, this should return close to $40/head. Finished Merino lamb prices should be good in the New Year, with even the weak price of 600¢ delivering a gross margin of $76 per head.  The recently released forward contract prices, above 700¢, offer very good margins on growing out Merino lambs.

What does it mean:

We’ve had a look at gross margins, but of course, costs need to be factored in, with feed, freight, mortality and shearing costs all cutting into the gross margin. A quick calculation of a full ration at $500/t to put on 18kgs liveweight will cost $50-70 per head. The worst-case price scenario still looks pretty good (Figure 3).  The strong price, which can be locked in for February in some areas, might encourage stronger demand for Merino lambs in the short term.

If you have green feed on hand and are lucky enough to score some of the forecast rain for the coming week, feed costs will be lower, and Merino lambs will be a very good investment.

Key Points

  • Merino lambs are not cheap in ¢/kg but weights are well down, making them buyable in $/head.
  • Gross margins on growing out and shearing Merino wether lambs are good, but feed costs will make a large dent in profits.
  • If green feed is available in the medium term, wether lambs should be a profitable trade.

After the falls, could we be finding support?

Posted on by Caitlin Dearden

The wool market continued to retrace this week with most of the falls coming at the beginning of the selling before stabilising towards the end.

The Eastern Market Indicator (EMI) fell 21 cents for the week, settling below 2,000 cents for the first time since early August, to end the week at 1,992 cents in AU$. The EMI in US$ terms produced a bigger correction, falling 51 cents to finish at 1,410 US cents (Table 1).

A softer Au$ helped the market, by the end of sales it was quoted at US$0.708. This is the lowest it has been on close since January 2016.

In Fremantle, the market lost ground on Wednesday where the WMI fell 26 cents but posted a more positive result on Thursday, gaining 17 cents to end the week at 2132 cents.

The Pass-in rate again stayed in double-digit figures, with 10.9% of the total offering passed. This resulted in a clearance to the trade for the week of 34,999 bales, with 4,262 bales passed. This produced an increased dollar value for the week of $84.02 million, with a combined value of $113.84 million so far this season.

In the nine auction weeks since the winter recess, 312,213 bales have been cleared to the trade, 39,451 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 4,386 bales per week fewer (Figure 2).

We often look to Fremantle as a guide to next week due to the later finish to sales, and this week it is providing a positive view. After consecutively falling days by the end of the week buyers were showing support, with AWEX noting that all types including skirtings found support.

Crossbreds were also impacted by the falls with the exception of 32 micron which was slightly stronger.

Cardings continued there slide south with a further 35-50 cents lost across the selling centres this week.

The week ahead

A further reduced offering of 34,467 bales should provide some level of support for the market.

The final day was much steadier than the early part of the selling week, so a return from some processors can be expected to support these levels.

The bottom for lamb or a dead cat bounce?

Posted on by Caitlin Dearden

The lamb market was following the trend of the last few weeks, until rain and an out of the blue bounce upset the market yesterday. The Thursday rally was felt across the categories, but was it just a dead cat bounce?

The market was moving along predictably enough. On Wednesday the Eastern States Trade Lamb Indicator (ESTLI) was down 57¢, hitting a 3 month low to 676¢/kg cwt.

Yesterday at Wagga the market changed direction. New season Trade Lambs averaged around 800¢/kg cwt, well above last week and the closing ESTLI of 682¢ (Figure 1).

There has been some rain about and the lower prices of the previous week added to supply resistance. Wagga lamb yardings were down 26%, while sheep yardings plummeted 44%.

There wasn’t a lot of rain around Wagga, but further north some good falls should see the NSW sheep market tighten significantly. Lamb might be a different story, with good prices still likely to draw out lambs which are finished, but it depends on what producers now see as good prices.

The crash in mutton was also halted on Thursday, as it sits just above the same time last year (Figure 2). The rain should be enough to see sheep slaughter continue to fall from recent highs and prices should steady.

Lamb and mutton prices also recently experienced a crash, but they too steadied this week.  No doubt rain in the west is adding support, along with the fact that with much cheaper lambs in the West should be seeing product moving quickly into export markets.

Next week?:

As noted earlier, the coming week should see prices steady. Despite the increase in lamb slaughter, it still sits well below full capacity. If we are close to the peak of supply, expect very good prices this spring.

An interesting stat to finish off. The East Coast Restocker Indicator finished Thursday at exactly the same price as this time last year. Higher finished lamb prices are being offset by higher feed costs.

Soaring yarding level raining on prices.

Posted on by Caitlin Dearden

Elevated sheep and lamb yarding levels are soaring like an eagle at the moment and creating a stormy price conditions for ovine markets this week. The Eastern States Trade Lamb Indicator (ESTLI) shedding 55 cents to close at 725¢/kg cwt and East coast Mutton peeling off 79 cents on the week to sit at 423¢/kg cwt on the mid-week close. 

Table 1 highlights the sale yard price behavior for the week, and year, for key lamb and sheep categories across the Eastern seaboard with red ink on the weekly movement shared across all stock types. Heavy lambs suffering the smallest decline with a drop of 47 cents, perhaps anecdotal reports of a dearth of heavy lambs due to the dry conditions insulating somewhat against the broader market falls.

Indeed, with the year on year price change for heavy lambs still reflecting that this season is 140¢ higher than last year and East coast heavy lambs topping the price table at 739¢/kg cwt this week suggests that heavy lamb supply could be a bit thin on the ground in some regions.

In contrast, broader East coast supply statistics for lamb weekly throughput shows that the Spring flush continues to ramp up, probably with much lighter weight lambs. Throughput levels are now sitting back at the upper end of the normal seasonal range for this time of the season as Victorian lamb throughput lifts 27% on the week signifying the flush is gaining momentum – Figure 1.

East coast sheep throughput is lower on the week, but as Figure 2 highlights remains at uncharacteristically high seasonal levels. Considering the volume of sheep still being presented at the sale yard mutton prices are managing to hold above levels seen this time last season, with East coast mutton 35 cents higher than in 2017.

Please note sale yard prices reflect Wednesday market close as this piece was prepared Thursday due to the AFL holiday in Victoria on Friday.

What does it mean/next week?:

A combination of low rainfall, 10-15 mm likely for Southern Australia, next week and a continuation of lambs coming forward as the Spring flush extends is probably going to make it difficult for the ESTLI to gain too much traction in the short term.

Wool market kicks against the wind in Grand Final week.

Posted on by Caitlin Dearden

Again, this week saw the wool market give up ground, easing on Tuesday when only Melbourne was selling and this trend continued when Sydney and Fremantle joined in. AWEX reported that it was the better style wool early in the week that met subdued demand, although buyers returned to look for bargains by weeks end.

The Eastern Market Indicator (EMI) fell 54 cents for the week, coming on top of last week’s 27 cents loss, to end the week at 2,013 cents in AU$. The EMI in US$ terms gave up 39 cents to end the week at 1,461 US cents (Table 1).

In Fremantle, the big “correction” came on Wednesday, where the WMI lost 74 cents but posted a more settled result on Thursday, losing another 7 cents to end the week at 2141 cents.

This week the Pass-in rate escalated in response to the market movement, with 14.1% of the total offering passed. A special mention goes to Fremantle, where on the first day 47.4% of wool offered was passed with a more modest 18.0% on the final day. This resulted in a clearance to the trade for the week of 28,324 bales, with 4,643 bales passed. This again produced a reduced dollar value compared to last week of $69.6 million, with a combined value of $830.1 million so far this season.

In the eight auction weeks since the winter recess, 277,214 bales have been cleared to the trade, 37,592 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 3,880 bales per week fewer (Figure 2).

The elevated Pass-in rates indicated that growers were not pleased with the softer market. With future supply looking tighter growers are prepared to punt on a recovery in the future.

A comment from the Rodwells team outlines the thinking going forward, – “Often the peak supply comes through around this time, if the 42K bales rostered for next week is the peak then supply is going to be lean for the rest of the season!”.

While falls were across the board, Crossbreds were not as severely punished, however, there were very small offerings to quote.

Cardings were particularly hard hit this week, Melbourne reported the Cardings indicator down 80 cents, while Sydney and Fremantle lost over 100 cents.

The week ahead

The offering next week is rostered at 42,500 bales, which is most unlikely to get to the auction as growers digest this week’s market correction.

The final day was much steadier than the early part of the selling week, so a return from some processors can be expected to support these levels.

Wool drifts lower

Posted on by Caitlin Dearden

The beginning of the selling week saw the Au$ firm and the wool market ease as a consequence, however on Thursday, it was a different tale as buyers abandoned the poorer quality types but retained focus on well measured good yielding wool.

The Eastern Market Indicator (EMI) fell, losing 27 cents for the week to finish at 2067 cents in AU$. This market move was influenced by a stronger AU$, the EMI in US$ terms only gave up 3 cents to end the week at 1,500 US cents (Table 1).

The recent market level has been encouraging sales, and wool producers were selling almost all the wool offered with Pass-in rates at record low levels. This week at auctions growers reacted strongly to the easing market passing in 9.8%, well up on last week’s 2.7%. This resulted in a clearance to the trade of 32,129 bales, with 3,500 bales passed. This again produced a reduced dollar value compared to last week of $80.73 million, with a combined value of $760.5 million so far this season.

In the seven auction weeks since the winter recess, 248,890 bales have been cleared to the trade, 26,259 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 3,751 bales per week fewer. (Figure 2).

A continuation of this trend will see wool volume offered continue well below last season, and also the lowest for the past three seasons.

The comparison with this time last year provides context for just how much this wool market has improved, with the EMI up 542 cents or 26% compared to the same sale in 2017. This is partly explained by a lower Au$, with the EMI in US$ up 280 cents or 19%.

Another good measure of the market level is the average gross value per bale of wool sold. In early 2018 it reached $2000, up from $1500 in May 2017, which was extraordinary.

For September the average bale value is averaging $2,525, helped by the strong market in fine merino wool at a time of the season when the clip fines up.

A comment from the Roberts team in the auction room probably best explained the week, – “Buyers were starting some of the lots at 400 cents below value and were bidding slowly and conservatively up to values not dissimilar from last week; but the focus was clearly on the better style wool”.

The only section to end stronger for the week was the Broad X Bred types in Melbourne, skirtings and cardings fell in line with other types.

The week ahead

The offering this week was 1,000 bales fewer than last week, next week a slightly smaller offering is rostered of 34,800 bales with all centres selling.

An early call on lamb supply

Posted on by Caitlin Dearden

Spring is well and truly here, but the spring lambs are not quite. We usually start to see lamb slaughter show weekly increases from mid-July through to mid-October. This year all we have seen is slaughter declines.  August and September are likely to post their weakest slaughter rates since at least 2009. The question is, how is this going to impact supplies for the rest of the year?

The latest Australian Bureau of Statistics (ABS) slaughter data released in early September showed a strong 9.6% increase in lambs slaughter in July compared to year-earlier levels. Higher prices and dry weather encouraged turnoff of the last of old season lambs. It’s also likely that the 158,700 extra head was made up of Merino wethers and both Merino and maternal meat breed ewe lambs which were previously destined to boost flocks.

We know from Meat and Livestock Australia’s (MLA) weekly slaughter statistics that lambs slaughter has taken a serious hit since the end of July as the new season supply failed to materialize. Figure 1 shows our estimate of where the official slaughter numbers might sit for August and September.

August lamb slaughter is likely to be down 20% on 2017, and September is currently running 30% lower. We haven’t seen August and September lamb slaughter this low since at least 2009 and could be the lowest since 2005. Figure 2 shows that in 2009-10 and 2005-06 lambs slaughter levels finished up at 20.4 and 17.3 million head respectively.

In a normal season, we assume that low slaughter early in the season will mean more lambs will come to market later. This is based on steady or rising annual slaughter rates. The Australian Bureau of Agricultural and Resources Economics and Sciences (ABARES) forecast 2018-19 lamb slaughter at 23.5 million back in June.

It’s becoming clear that lamb slaughter is not going to reach the levels seen in 2017-18, with marking rates well back. We really are in the dark as to how many lambs are out there, but we can use historical slaughter rates at a guide. Figure 2 shows where we expect financial year slaughter to sit at with high (ABARES forecast), medium (21 million head) and low (19 million head) levels.

It indicates how the forecast slaughter levels will play out if we deduct what has already been slaughtered and if annual seasonality is applied to the remaining nine months.

What does it mean?:

If we somehow manage to find 23.5 million head of lambs to slaughter in 2018-19 supply will be well above last year for the remaining months. The medium and low scenarios show a significant monthly supply gap despite the slaughter declines we’ve already seen.

In terms of price, the medium and low slaughter forecast levels take prices to new records. Figure 3 shows our demand curve and extends it to slaughter of 19 and 21 million head. Under the demand equation we’ve seen in recent years it gives average prices of 1059 and 800¢/kg cwt. We don’t expect prices to move through $10 this year, but lower slaughter paints a positive picture for prices.

Spring lambs on the mind

Posted on by Caitlin Dearden

Coles and Woolies are already sprucing new spring lambs on their shelves, and we can see where they’re coming from with rising yarding levels in the south telling us the spring flush is making its move. This has already begun to take its effect on prices, with another week of declines for most lamb categories.

Victorian lamb yarding’s are starting to show signs of the spring flush. September totals for Victoria are currently sitting at 5% above year-ago levels and this is providing a boost to east coast numbers. The total east coast yarding’s were 151,018 for the week. Although 17% lower than 2017, it’s still sitting 8% above the 5-year average for this time of year (Figure 1).

The rising throughput is flowing through to affect the Eastern Indicators. The Eastern States Trade Lamb Indicator fell 19¢ on the week to see it at 773¢/kg cwt. Heavy lambs weren’t able to hold onto their levels for another week, posting a 35¢ drop to 783¢/kg cwt. Restockers were the exception to the falls, managing to finish the week slightly higher (4¢). There’s still a long way to go before we see these prices close in on last year figures.

Mutton prices were again able to largely avoid the fate of lamb prices. The mutton indicator ended the week at 489¢/kg cwt, down just 2¢ on last week. The holding sheep prices in the face of declining lamb prices appears to be encouraging some supply forward. East coast sheep yarding’s have jumped a massive 57% higher in the last week, thanks to spikes in NSW and Vic (Figure 2).

What does it mean/next week?:

As covered in this week’s analysis article, we can’t see lamb supply matching last year’s levels through all of spring. This immediate rally in supply is likely to be mopped up relatively easily by processors.

If supply does continue to increase due to dry conditions, there will be some pressure on prices, but this impact should be short-lived.

The quid pro quo is that with available numbers more likely to be less than the 2017/18 season, tight slaughter supply is likely to maintain upward pressure on prices. The spring flush of supply could again have a limited corresponding decline in spring lamb prices, similar to the past two seasons.