Category: Sheep

Lamb markets had their usual reaction when prices fall heavily, supply contracted as producers looked for alternatives to selling. Not all prices steadied though, with restocker lambs taking a hit and now looking very cheap.

Finished lamb supply tightened, but it seems unfinished lambs kept coming. Figure 1 shows the National Restocker Indicator took a heavy hit this week, moving to a low not seen since August 2016. The difference in seasons this year and last is stark. Restocker lamb prices being 200¢ lower this year is a pretty good reflection of the lack of feed available for lambs.

Figure 2 shows NSW restocker lambs at a 60¢ discount to the Eastern States Trade Lamb Indicator (ESTLI). Even if we expected the ESTLI to stay around the 580¢ mark, we’d say restocker lambs were cheap. At 520¢ a 16kg lamb will cost $85-90. If the ESTLI gets back to 650¢/kg cwt, which it should when it rains, a 20kg lamb will make $135-140 per head. It’s a good margin.

Mutton hasn’t been so caught up in the lamb price fall. Figure 3 shows the National Mutton Indicator has lost 23¢ in the last few weeks, and is 80¢ below the same time last year.

In the West, mutton is around the same price, but WA has the most expensive lambs in the country. The Western Trade Lamb Indicator is at 614¢/kg cwt, down 18¢ on last year but still priced pretty well. There is not a lot of rain forecast for WA, so prices may start to track down towards east coast values.

The week ahead

There is not much rain forecast for anywhere over the next eight days, so it’s hard to see much upside for sheep or lamb prices in general. Don’t be surprised to see restocker prices bounce though, as figure 2 shows, they don’t stay this cheap relative to finished lambs for long.

Persistent dry conditions, hitting NSW particularly hard, and a delay to the Autumn rains have forced higher than average seasonal yarding levels this week. Lamb and sheep prices are reacting to the higher saleyard numbers accordingly, with declines across all Eastern mainland state categories reported by Meat and Livestock Australia.

Figure 1 highlights the weekly and historic yearly price moves across the East Coast saleyards this week, and it’s a sea of red ink. Falls were recorded, ranging in magnitude from 3.5% to 17%, with Restocker Lamb taking the biggest hit, off a dollar on the week and 26.7% softer than this time last season. The Eastern States Trade Lamb Indicator (ESTLI) is mirroring the broader market decline with a 4.6% fall to close at 572¢/kg cwt.

There’s a different picture in the West with prices broadly holding their ground as lamb and sheep throughput levels are comparable to the volumes registered this time last season. WA Mutton is the laggard, off 1% on the week to sit just above 400¢ and WA Merino Lamb the star performer, registering a 5% gain to test back above 630¢/kg cwt.

Among the South Eastern regions, NSW and SA categories of lamb are leading the price declines with falls recorded in the 5%-15% magnitude, while Victorian lamb categories are not off as much, posting declines between 3%-10%.

Saleyard throughput across the East coast is reflecting the delayed start to the Autumn break with weekly numbers for both lamb and sheep above the five-year average levels. NSW is the key driver for the additional throughput as the dry conditions have been impacting producers there and having a notable effect on sheep yardings in recent weeks.

Figure 2 shows the 50% gain in throughput for NSW lamb this week and numbers spiked back toward 113,000 head, a level 22% higher than the seasonal average and 122% more than this time last year. NSW sheep yardings are showing a more definitive deviation from last seasons pattern than NSW lamb, with average weekly yarding levels for the last month sitting 46% higher than for the same timeframe last season and 39% above the longer term seasonal trend pattern – Figure 3.

What does it mean/next week?:

The rainfall forecast for the week ahead shows 5-10mm expected for most of NSW and up to 25mm for parts of Victoria, but little elsewhere is anticipated in the sheep rearing zones across the nation. It may be enough to ease the magnitude of the price declines witnessed this week, but not enough to put a solid floor under the market at this stage, nor to get prices moving higher in any significant way.

Supply in Australia continues to underperform for the broad merino categories, at a time when other greasy wool exporting countries are at a low point in their seasonal supply patterns. This article looks at the latest AWTA core test volume data, which allows a breakup of supply by micron category.

Figure 1 shows the year on year change for March 2018 AWTA core test volumes by micron category, running from 15 micron and less on the left through to greater than 30 micron, then cardings and finally total volume on the right. The 20 through 23 micron categories, effectively the merino production on the broad side of the average fibre diameter of 19 micron, stand out as having the largest fall in March. 21 to 23 micron volumes are down by 35-40%, which is a large fall, complicated by the continued high level of vegetable fault in eastern Australia.

As a check on single month variations in volume, Figure 2 shows the year on year change in volumes for the January to March period. It shows a slightly different view. However the 21 to 23 micron volumes are still down by 20-30% for the March quarter compared to a year ago which is still a large fall in supply. On the three month view, 17 to 19 micron volumes are up, as are the major crossbred micron categories. Overall the total wool volume for the March quarter is down by 2.5% compared to 2017, which does not tell what is going on for the different micron categories.

So, what is happening? In March 2017 some 59% of 21 micron wool sold at auction came from four regions; the Great Southern in Western Australia (24%), the Midlands in Western Australia (9%), northern South Australia (16%) and southern South Australia (10%). While the auction and AWTA data are not directly comparable, the drop in 21 micron volumes in these four regions accounts for some 25% of the 39% drop seen in March AWTA volumes. In other words these four regions account for about two thirds of the change seen in 21 micron volumes.

The four regions accounted for 58% of 21 micron sales in April 2017, before dropping back to around 40-44% by mid-2017. The seasonal conditions in these regions which has caused the current fall will not turn around quickly and given their continued importance to 21 micron supply in Australia, it seems likely the supply of broad merino wool will remain well below year earlier levels for the balance of this season.

Key points:

• AWTA total core test volume fell by13% in March, and is down by a smaller 2.5% for the March quarter.
• Changes in total volume, however, mask some quite varied changes in volume between the different micron categories.
• In terms of micron categories, the broad merino micron categories have fallen significantly this year.
• 17-19 micron volumes are up as are the main crossbred micron category volumes.

What does this mean?

The supply of broad merino micron wool is down by 20-30% for the three months to March and by more in March. Two thirds of this fall is coming from the Great Southern and Midlands in Western Australia and South Australia. These regions are likely to continue driving the supply of broad merino wool well below year earlier levels for the balance of the wool selling season, which should help support broad merino prices which in turn will help support medium merino prices.

 

There was no post Easter price spike this week, with processors seeming to have their supplies booked up well in advance. Saleyards were well supplied, and the good news, again, is that prices remain relatively strong despite plenty of lambs and sheep being on offer. 

Lamb prices eased marginally this week, and mutton prices were up a bit. The result has the National Mutton Indicator (NMI) sitting close to an 8 month high in relative terms. Figure 1 shows the NMI is now at a 38% discount to the Eastern States Trade Lamb Indicator (ESTLI), which is just below the mark set in December.

The NMI discount might be strong relative to the last 8 months, however strong supplies see it still sitting 8 percentage points below this time last year.

It’s interesting given the low sheep offtake shown in this week’s analysis article  that this year mutton has been more discounted than during the flock liquidation of 2014-15.  Obviously, lamb prices are a lot higher and this appears to be putting some pressure on the mutton discount, despite being in the midst of a flock rebuild.

The Aussie dollar has weakened recently (figure 2), this should be providing support for export lamb values in our biggest markets. The ESTLI in US dollar terms is now looking not that expensive. Figure 3 shows USD prices were higher last year, and in 10/11 and 14/15.

This is another indication that perhaps there is room on the demand side for lamb prices to push higher, that is if supplies do start to wane over the coming month or two.

The week ahead

The lamb market is in reasonable shape. There will be upside if or when it rains, but the trade was shaping between the US and China has added in some uncertainty. There will be no direct impact on Australian lamb, but China’s tariffs on US beef and pork are likely to have some indirect impacts on our meat values.  Which way our prices get pushed requires a bit more analysis.

Last week was a day short of a full one, thanks to Good Friday. The short week saw a predictable drop in both sheep and lamb slaughter, but supplies remained much stronger than Easter last year.  Prices are starting to fall behind last year levels, so this week we thought it timely to take a look at what price and supply tells us about demand.

Figure 1 shows Good Friday dragged weekly east coast slaughter back to its lowest level for the year to date.  Easter 2017 is clearly shown, with the added week of Anzac day seeing three weeks of low slaughter. Last week lamb slaughter was 2.5% higher than Good Friday week last year.

Sheep slaughter was much stronger. This year Good Friday week sheep slaughter was an extraordinary 26% stronger than last year. Combined sheep and lamb slaughter was 7% higher than last year.

The last week took total year to date sheep and lamb slaughter to 4.6% higher than last year.  The extra 250,000 sheep and lambs slaughtered for the year so far equates to around 3 days of sheep supplies. It’s interesting that this is the case, even despite 50,000 head of weekly kill space being taken out by the January fire at Thomas Foods.  NSW and Victorian processors have more than picked up the slack, seemingly driven by good demand and margins.

Figure 3 shows it was this time last year that the Eastern States Trade Lamb Indicator (ESTLI) really took off. Not surprisingly, the rally towards 700¢ coincided with a solid autumn break across the Eastern States, which no doubt tightened supply.

We’ve identified that demand for lamb and sheep has been stronger than last year for much of the 2017/18 season to date. This is evidenced by prices being similar or stronger, despite supply being stronger.

Last year’s strong prices from this point may have been driven by stronger demand, as lamb supply remained relatively steady. Restockers would have contributed to increased demand, but this time last year might have been the start of the current strong demand period.

What does it mean/next week?:

While strong lamb and sheep supply does mean weaker prices now, at least weaker than the peaks and this time last year, it does bode well for those looking to sell lambs and sheep over the coming months.

May is usually one of the stronger slaughter months for the year, but with strong numbers coming through to date, it might be the month for the winter price rally.

Key Points

• Lamb and sheep slaughter was lower for Easter, but still well above last year.
• Prices are falling behind last year’s levels, but demand remains similar.
• Continued strong supplies of lamb and sheep should see tighter supply, and stronger prices over the coming months.

Anecdotal reports of the lack of rain boosting throughput levels along the East coast, particularly in NSW, are being supported by the yarding numbers this week with a spike in both sheep and lamb throughput noted. Despite the higher offering, prices have remained fairly stable with the Eastern States Trade Lamb Indicator (ESTLI) only 3¢ lower at 612¢/kg cwt and National Mutton managing to gain 2.6% to close at 437¢.

Figure 1 highlights the combined sheep and lamb throughput pattern for NSW with the jump in yarding levels on the week quite evident, coming in at 190,195 head – 54% higher than this time last season and 89% above the seasonal five-year average pattern. The high NSW yarding of lamb and sheep is a result of the lack of rain to much of the Western regions of the state.

February rainfall deciles from the Bureau of Meteorology show much of the state suffering from below average to very much below average rainfall conditions. Figure 2 and the animation of daily rainfall levels during March, emphasize the dry start to Autumn.

Elevated NSW throughput numbers for lamb and sheep have underpinned higher East coast figures on the week, with a 41% jump to over 303,000 head – figure 3. Indeed, the combined East coast lamb and sheep yarding is now sitting 54% higher than the average seasonal level for this time of the year according to the data over last five years.

Despite the additional supply at the sale yard, lamb prices across the Eastern states are holding up reasonably well. Restocker lambs are back above 600¢ in Victoria (625¢), NSW (637¢) and South Australia (600¢) with Trade and Heavy Lambs across these three states mostly unchanged on the week. Victorian mutton rebounded over 6% to see it back above 450¢, while SA mutton took a bit of a dive, down 9% to 365¢. In the West Trade Lambs went sideways, closing above 630¢ while WA Mutton bounced over 9% to get back above 410¢.

What does it mean/next week?:

There isn’t much rain on the horizon for most of the nation, although the northern tropics will get some into next week, but it’s unlikely to shake out further sheep and lamb supply as the Easter break will cause some disruption to sale yard flows.

It’s probably fair to say producers with concerns about the recent lack of rain and access to pasture have brought forward their supply, adding to this weeks elevated throughput. The prospect of tighter supply in the weeks following the return post Easter, should lend some support to prices, especially if we start to get some Autumn rain.

 

The pattern of the wool market rising one week and falling the next continued. This week saw the market continue the weak finish to last week’s sales and post a week of price corrections.

The Eastern Market Indicator (EMI) gave up 6 cents to 1772 cents, while in US$ terms the EMI lost 3 cents to 1364 (Figure 1).

This US$ level for the EMI is the lowest the market has traded for this year, an indication that unlimited demand and price rallies are no more the case now than they were ever. It now appears that the market may have found a top (in technical or charting terms) in January, and with reports of tightening Chinese credit terms we could be lining up for weaker demand and lower prices in 2018.

The AU$ played its part and lost favour during the week, easing again by 0.5 cents to US$0.77, which softened the fall in the general market indicators. The West fared better, due to the later selling last week the market had already pulled back, in fact the Western Market Indicator (WMI) gained 2-cents to 1869 cents.

There was an interesting spectrum to the market this week; the crossbred section posted another week of increases, and due to the greater volume of crossbred wool in the Melbourne catalogue the Southern Indicator held steady.

Crossbred types for the second week in a row rallied between 10 and 20 cents. Merino skirtings performed stronger than the fleece types although generally slightly lower for the week.

Merino Cardings had another good week, posting around a 24-cent improvement across the three cardings indicators.

The past three weeks has seen the Pass-in rate fluctuate with 9%, 4.0% and this week 7.8% passed by growers as they react to the variable market week-on-week. Generally this rate has fluctuated in line with market movements week on week.

There was an increased clearance this week of 41,334 bales, almost 5,000 bales more than last week.

The week ahead

Next week is the Easter break, with sales resuming the week beginning 9^th April.

On resumption, almost 49,000 bales are offered, which will test the resilience of the market. AWEX report that volumes are predicted to decline after this sale.

One week down, the next week up. This has been a familiar pattern in recent times although this week the lift in the market was all due to currency movements.

It was a tale of two markets, the opening day was where all the gains were made, with Thursday delivering a modest retracement. The Eastern Market Indicator (EMI) had picked up 27 cents to 1778 cents, ironically retrieving the same amount that was lost last week. In US$ terms the EMI actually lost 2 cents (Figure 1).

The AU$ lost favour during the week, easing by 1.3 cents to $0.775, which accounted for all the increase in the general market indicators. The West also had a good result, the Western Market Indicator (WMI) gained more than last week’s loss seeing a 35-cent improvement to 1869 cents.

The two-market story continued into the relative prices within micron categories; again, AWEX reported that better style wools, while in short supply, were keenly sought, conversely high mid-break wools were increasingly neglected and discounted.

Crossbred types also recovered all last week’s losses, rising between 10 and 20 cents. Merino skirtings followed the fleece types higher for the week and generally held the gains to the close.

Merino Cardings also had a good week, posting around a 30-cent improvement.

As has been the case in recent months, growers responded strategically to the better prices and only passed in 4.0%, down from last week’s 9%, resulting in a clearance to the trade of 36,707 bales.

The week ahead

Next week there is almost an additional 10,000 rostered, with 47,091 bales forecast on offer across the three selling centres.

Due to the Easter break, the two days of sale will be on Tuesday & Wednesday, with a one week break after Easter.

On resumption, another 47,000 bales are offered, which will test the resilience of the market. AWEX report that volumes are predicted to decline after this sale.

Sheep and lamb prices continued a muted upward trend this week, with increases in values across all trade lamb indicators. Mutton values were also higher everywhere except WA, and restockers came back to the market for light lambs.

Figure 1 shows that the Eastern States Trade Lamb Indicator (ESTLI) and the National Mutton Indicator (NMI) are very close to last year’s levels. Additionally, both lamb and mutton prices appear to be following a similar trend in recent weeks, rising from pre-labour day lows to post a few weeks of gains.

There has been reports of stronger demand for light lambs for Greek Easter demand, and this should continue for a week or so yet. Greek Easter is on the 8^th of April this year.

Mutton supplies have been on the wane, and prices are finding strength, up above 10% over the last month.  Victoria and NSW both have mutton values over 440¢, but in the west prices lost 41¢ this week to hit 379¢/kg cwt.

Restocker lambs were the biggest mover. The Eastern States Restocker Indicator gained 36¢ on Thursday, and 44¢ for the week. This could have something to do with stronger light lamb demand, but restockers might have read our article from earlier in the week. In NSW 16kg restocker lambs moved back above $100/head (figure 2).

An interesting stat is restocker lambs are still around 10% cheaper than this time last year, despite finished lamb prices being similar. The more expensive grain, and lack of green feed, is no doubt dampening demand for restocker lambs in the current market.

The week ahead

With Easter coming up, and the associated disruptions in lamb kills, it’s going to be a risky week for selling stock in the saleyards. Prices could spike, like they did at Wagga today, if processors don’t have enough stock booked up, but the closer we get to next Friday the smaller the amount of kill space available.

There’s not any real rain on the forecast, and if it stays dry there is a risk of more growers destocking as feed supplies dwindle.

Alpaca numbers in Australia are estimated to be between 170,000 and 450,000, with the higher estimate considerable in view that the sheep flock only numbers around 70 million. Wool ranging from 24 through to 26.8 micron is blended with alpaca. The combination of alpaca numbers and some relationship of the alpaca fibre to wool are behind this brief look at this ancient luxury fibre.

In volume terms Alpaca is middling amongst the animal fibres, on par with mohair and angora volumes. Table 1 shows the estimated world production for 2015 of all fibres (96 million tonnes) and then by animal fibre which ranges from wool (the largest animal fibre) down to guanaco fibre which has an annual production around 2 tonnes.

Some 80% of world alpaca production comes from Peru and Bolivia with three quarters of this production now going to China for processing. In these trade flows alpaca reflects what goes on in the wool market.

Sources from the wool supply chain indicate that 24 to 26.8 micron wool (26.8 being the old Chinese crossbred blend Type 423 which has an average fibre diameter of 26.8 micron) is blended with alpaca. The 24 to 27 micron categories make up 8-10% of wool supply as a rough estimate, which means there is plenty of 24-27 micron wool to blend with alpaca.

Figure 1 compares the 24 MPG and adult alpaca fibre price from the mid-1980s onwards in US dollar terms. Like wool there are a range of alpaca fibre grades related to fibre diameter and the ability to dye (whiter the better for this). In this article the lowest value, adult fibre, has been used in price comparisons. Figure 1 shows the alpaca and 24 micron price series to spend some time positively correlated and other times negatively correlated. The 2002 rally in the 24 MPG was part of the post stockpile liquidation cycle, specific to wool. This cycle upsets wool price relationships generally. If we chop out the 2002 to mid-2004 period, on the assumption we have no stockpile liquidation to worry about since then or in the foreseeable future, the correlation between these two series rises to a respectable 0.69, meaning wool prices can explain nearly 70% of the change in alpaca prices.

In recent years the adult alpaca and 24 MPG have followed a very similar path. Now, note the sharp rise in the alpaca price since the second half of 2017. The price is up by around 60%, and the price gap between alpaca and wool has widened considerably. The temptation to increase the blending of wool into alpaca will be rising.

Figure 2 compares adult alpaca and an acrylic fibre price series from the mid-1980s onwards, in US dollar terms. While the basis between the two series varies, the general trends match up. Rolling 5 year price percentiles for each fibre follow each other quite closely, so the relative expensiveness/cheapness of acrylic fibres is matched by alpaca.

Key points:

• Adult alpaca fibre price have a good correlation with the 24 MPG.
• Since mid-2017 the adult alpaca price has risen by a round 60%, with the gap between alpaca and wool prices widening markedly.
• The general trends in acrylic fibre prices are matched by trends in alpaca prices.

What does this mean?

Recent marked rises in alpaca prices (the adult price is quoted up by some 60% since mid-2017) are of interest for the 24-27 micron wool categories. As alpaca and 24 micron prices have generally had a strong positive correlation, the lift in alpaca price should be supportive for 24-27 micron prices. Acrylic prices have not changed greatly so there is not supporting move in manmade fibres, which might be a limiting factor.

Table 1: 2015 estimated animal fibre world production
Fibre	Annual volume tonnes
All fibres	96,354,000
Clean Wool	1,160,000
Silk	170,000
Cashmere	28,760
Mohair	6,260
Alpaca	6,000
Angora	5,630
Yakhair	4,170
Camelhair	2,775
Llama	2,500
Vicuna	7
Guanaco	2
Source: IWTO