Category: Sheep

Another week with red splashed across the board for the wool market. The price retractions were not as severe as last week, yet the further correction meant buyers were more selective with their purchases resulting in significant discounts or rewards for quality.

Even on opening, the market began its slide further into negative territory for most categories.  By the close on Thursday, the Eastern Market Indicator (EMI) had fallen 27 cents to 1751 cents, while in US$ terms the drop was just 13 cents (Figure 1). The AU$ found additional strength during the week, edging up to $0.788, which was evident in the market indicators. The story was similar in the West. The Western Market Indicator (WMI) seeing a 25 cent reduction to 1834 cents.

A reduction in prices meant buyers were able to be more picky with their purchases. AWEX reported that small impurities, which were being overlooked in the rising market, didn’t make it past buyers eyes unnoticed this week and received significant discounts. In particular, wools with high mid breaks of greater than 75 struggled to make the cut. But this also meant that lots possessing mid breaks of less than 40 were rewarded with attractive premiums.

Fine fibres of 19 micron and less were generally subject to reductions of 60 to 70 cents In Northern and Western selling centres. Losses for broader microns averaged 30 to 45 cents. The Southern region was much more forgiving however. Wools of 18.5 to 22 micron seeing drops hovering around 10 cents.

Crossbred types reflected similar outcomes to the Merino market with prices generally discounted between 10 and 20 cents from last week. Merino skirtings saw some mixed results. Those with high VM were heavily discounted while some favoured lots with VM below 5% retained their ground.

As would be expected, the further fall in the market left growers unappeased, leading to a pass in rate of 9% for the 42,645 offered to the trade.

The week ahead

Next week there is 38,849 bales forecast on offer for the three selling centres. A 9% drop on this week’s offering.  Two days of sale on Wednesday and Thursday are set for each Sydney, Melbourne and Fremantle.

The broad trend in East coast lamb and sheep slaughter numbers continue to be dominated by NSW and Victorian flows at the moment with a spike in lamb slaughter in the previous week, to levels well above normal, unable to dampen prices too vigorously. Similarly, elevated throughput along the East coast for both lamb and sheep was powerless to inhibit demand, particularly for mutton and Merino lamb.

The Eastern States Trade Lamb Indicator (ESTLI) closing slightly firmer, up 1.6% for the week at 607¢/kg cwt while the National Mutton Indicator surged higher, posting a gain of 6.4% to reach 431¢. A similar story for lamb and mutton in the West with the WATLI broadly trekking sideways to finish at 620¢ and WA Mutton up 1% to 420¢. East coast Merino Lamb the best performer this week of the lamb categories up 4.3% to close at 598¢/kg cwt.

Figure 1 highlights the jump in lamb slaughter for the week ending 9^th March to see levels on par with the Spring flush with over 396,000 head sent to processors. This reflects a 6.2% lift on the slaughter figures for the previous week and more than a 10% gain on what was sent to the meat works this time last season, or indeed what has been the seasonal average level for the last five years.

East coast sheep slaughter numbers continue to decrease week on week, trending below the five-year average pattern, but higher than this time last season – Figure 2.  Indeed, the mutton slaughter levels reported for the week ending 9^th March now sitting 8.7% under the February seasonal peak after successive declines for the past four weeks.

The combined East coast throughput levels for sheep and lamb creeping above the upper boundary of the normal seasonal band this week to break above the 70% range for the third time this year with 269,870 head reportedly changing hands at the sale yard, 18% higher than the average pattern for this time in the season – Figure 3.

What does it mean/next week?:

The relatively high historic prices being received by producers this season at the sale yard continues to attract supply, as identified by the high levels of sheep and lamb throughput shown in figure 3. Additionally, the high slaughter levels (particularly for lamb) we are seeing at the moment means that there’s a good chance there will be less available later into the season.

The fact that the high supply now isn’t having a huge impact upon prices is a good sign for producers, and the prospect of tighter availability later in the season will continue to keep prices robust. Although, into the shorter term the Easter break is just a fortnight away and this may see demand and prices soften a little as meat works look to reduce capacity or close for maintenance over the break.

It has been two months since we’ve had a look at short term slaughter forecasts.  Recent heavy lamb and sheep slaughter rates brings us back to look at the theory that killing more stock now means fewer for later.  But how many fewer, and what will it do to price?

Regular readers will know that forecasting supply is a difficult task, but forecasting lambs supply is a bit easier than sheep. While the total years lamb supply is relatively finite, it can be increased by dry seasons as more ewe lambs, and merino wethers are slaughtered.

Sheep are a different story, with slaughter rates highly dependent on weather.  In the last five years we’ve seen swings lower to 18% in 2016, followed by an 8% rise in 2017.

Recent dry weather in key lamb producing areas has seen slaughter rates running stronger at the start of 2018. Figure 1 shows January slaughter was up 2% on last year’s levels, and February up 6% based on estimates from MLA’s weekly slaughter data. For the week and a half of March so far, slaughter is up 10%.  We made an assumption that this will continue.

The strong early 2018 slaughter somewhat made up for the very low levels seen in December, and financial year to February sitting 235,000 head, or 1.6% above the same time last year.  In the scheme of things, lamb slaughter is running pretty close.

The first two weeks of March have seen the higher slaughter levels continue, and the deficit in future supply increase. Assuming MLA’s slaughter slightly higher forecast of 22.5 million head is correct, we have forecast lambs supply for the last three months of the financial year.

April slaughter comes in 8% above last year, May 8% lower and June 11% lower. The total lamb slaughter for the April to June period will be 4% lower if slaughter is to meet the 22.5 million head mark.

Obviously the timing of the autumn break in the south will have a lot of bearing on lamb supply over the coming three months. A late break would be likely to see slaughter around last year levels, maybe higher, while a break towards the end of March could see significantly tighter supply in from April to June.

 

What does it mean/next week?:

With the heavy slaughter rates of recent weeks it’s easy to see why the Eastern States Trade Lamb Indicator (ESTLI) is tracking under last year’s levels. In fact, it’s a bit surprising it’s as strong as it is.  Demand obviously remains strong, as processors wouldn’t be killing this many if there wasn’t money in it.

Going forward, concern should be mounting about late autumn and winter supply.  There were fewer lambs killed in November and December, but the extras are now all gone, and any move towards flock rebuild, with a reasonable autumn break, could see us back above last year’s levels (figure 2) and heading towards 700¢.

Key Points

• East coast lambs slaughter has been higher than last year so far in 2018.
• Stronger slaughter has more than made up for lower kills in November and December.
• With more lambs exiting the system, supplies could be short after the autumn break.

After a week of new record levels last week, the wool market this week delivered a timely warning; despite all the optimism and a good dose of hype, markets have their own set of drivers and will at times surprise.

It is probably unfair to say that the results this week were a surprise, with the market at record levels customers (buyers) are within their rights to test the resilience of current prices.

The Au$ didn’t do the market any favours; improving over the week by almost US0.01. This contributed to the Eastern Market Indicator (EMI) to falling by $0.52 to close at 1778¢, while in US$ terms it eased 22 cents. As well, the Western Market Indicator (WMI) also lost ground, giving up 46 cents to finish at 1859 cents. For the week, the EMI in US$ terms fell 5 cents.

After last week posting new records, the EMI this week reflected a weaker market from the outset. Falls were across the board for Merino types, again AWEX reported that the lesser types were most effected.

Falls of 40 to 80 cents was the general rule, however those lots with poor mid break, strength or VM figures at times lost 100 cents.

Skirtings weren’t spared either, with the falls in this category generally in line the fleece.

X Bred types bucked the trend of the week, with the 25 to 28 MPG showing solid results to finish 10 cents dearer. There was a note from the market that poorly prepared lots at times found it difficult to attract interest. Cardings continued to lose ground, across the three selling centres the decline was 34 cents.

An area of interest was that despite the significant pull-back this week, growers only passed-in 4.2% of the offering, perhaps a good indication that they are hesitant that further upside is assured in the market.

A slightly increased offering of 45,500 bales was offered, with 40,600 sold with growers passing-in almost 5,000 bales.

The week ahead

Sales are scheduled for all three centres next week conducting a 2 day sale with Melbourne conducting a 3-day sale on Tuesday, Wednesday & Thursday. Fremantle & Sydney have a 2-day roster.

A total of 43,894 bales are rostered for next week, with almost 2,000 less rostered than this week’s offering; the roster continues to hover at these levels over the following 2 weeks with an average of 43,000 anticipated.

It seems there was plenty of slaughter capacity which wasn’t being used last year. Despite the Thomas Foods fire taking out 55,000 head of capacity per week, sheep and lamb slaughter runs well above last year’s levels. Prices are responding accordingly.

What you normally see is if lamb slaughter is higher, sheep slaughter is lower, and vice versa. However, what we are seeing at the moment is that despite plenty of capacity being taken out, both sheep and lamb slaughter is stronger than last year.

At the end of last week east coast lamb slaughter was 7% higher than last year. Sheep slaughter was 43% higher than last year. In total there were 64,000 head more sheep and lambs slaughtered last week than the same week last year (figure 1). This was a 14.6% increase, and it seems to be driven by a dry summer in Victoria, South Australia and Western NSW. As outlined last week, the extra stock are being slaughtered in NSW and Victoria.

Yardings were steady this week, but don’t be surprised to see slaughter at least as strong as recent times.  It’s hard to see supply being tighter when the Eastern States Trade Lamb Indicator (ESTLI) has fallen below 600¢ for the first time since October.

Mutton prices didn’t suffer as much this week, easing 5¢ on the east coast to 405¢/kg cwt, and gaining ground to 416¢ in the west.

While on the west, they had the most expensive lambs in the country this week. The WA Trade Lamb Indicator was at 625¢/kg cwt this week.

The week ahead

There is no rain on the way, but we are in for a series of short weeks. What this does to the market is debateable, but in general you’d expect lower kills to see prices weaken further, or at least struggle to rise.  The good news is the heavy kills we are seeing now means that there will be fewer lambs later, and this means higher prices. We might have to wait for some rain before any serious rally eventuates however.

Earlier this week the first forward contract prices for lambs and mutton for the April to July period were released.  While there were few surprises on the pricing front, it’s worth taking a look at the values, and how they compare to historical price movements, and where prices were last year.

Thomas Foods International has plants in South Australia and Tamworth, and this week put out extensive forwarding pricing grids in an effort to secure supply for autumn and winter for both locations.

The forward contracts are available from April to the end of July, with prices for cross bred and merino lambs, and mutton.  The contract values are 10¢ higher for delivery to Tamworth for lambs, but are the same for mutton.

Figure 1 shows the Eastern States Trade Lamb Indicator (ESTLI), along with the forward contract prices for Tamworth.  Remember, Lobethal is 10¢ lower.  Forward prices for cross bred lambs have been pitched at the lower end of the range of 2017 saleyard prices.

There is some incentive for growers, with price starting in April at a small premium to current values, and increasing by 10¢ per month thereafter.  Figure 1 shows that the average price rise from March is stronger than that predicted by the forward prices.

For Merino lambs the contracts are largely priced at stronger levels than 2017 saleyard prices at Tamworth (figure 2). However, they are 20¢ lower at Lobethal from May, which puts them at similar pricing to last year.  In terms of trends, the merino lamb contracts are priced at a better premium to current levels, but don’t match the average rise we normally see into June.

While the lamb contracts look ok relative to last year, the mutton contracts look decidedly cheap.  Figure 3 shows forward contracts tracking 60-100¢ lower than the same time in 2017.  It should be noted that the price shown on figure 3 are for Merino Ewes.  Merino wethers are 20¢ stronger, and crossbred ewes 20¢ lower.  Still, the forward contracts only really offer current values, plus a bit more in the winter.

What does it mean/next week?

If feed is cheap, ie grass, the forward lamb contracts offer good value for those looking to buy, or hold store lambs for sale later in the autumn or in winter.  If feeding a full ration, some careful calculations need to be done to assess whether it might be better to sell now.

For sheep the forward contracts look a little cheap given usual seasonal trends of tightening supply, and improving prices thought the autumn.  There is a risk of a failed autumn break in southern NSW, Victoria and South Australia, which would make current prices look attractive, so a bit depends on your views on the weather.

Key Points

• Forward contracts for lamb and sheep have been released this week with prices at a premium to current levels.
• For cross bred lambs forward contracts offer reasonable value, and good value for merinos.
• Forward sheep contract look a bit cheap given usual seasonal trends, and last years prices.

A solid market given a slightly increased offering was the tone for this week, although the Au$ falling against the Greenback (US$) was the principle reason for a generally stronger market.

This resulted in a number of key indices setting new record levels again. Prominent was the 21 & 22 MPG indicators in the south, lifting 30 & 50 cents respectively.

For consecutive weeks the most significant factor was the Au$; by the end of the week it was quoted down a further US$0.007, sitting comfortably below US$0.78. This assisted the Eastern Market Indicator (EMI) to rally by $0.10 for the week to close at 1830¢. As well, the Western Market Indicator (WMI) also improved 10 cents to finish at 1895 cents. For the week, the EMI in US$ terms fell 5 cents.

The market opened strongly on Wednesday where the EMI reached a new record level of 1834 cents, hurdling the previous high of 1822 cents with ease. On Thursday it gave back a little ground, however overall a strong week for the wool market.

Skirtings had a mixed week in line with fleece types; better measured types attracted at times strong competition while high VM pieces had irregular demand.

X Bred types also had a varied week, 30 & 32 MPG was cheaper, while 25 to 28 MPG generally dearer, although not by a lot. Cardings again lost ground, although in Melbourne AWEX quoted slightly firmer.

As previously reported, it is usual at this time of year for the supply of wool with high mid breaks to grow. This is resulting in an increase in the discount for these types, at times 80 to 100 cent deductions compared to the corresponding low mid break types.

Of the 44,150 bales originally offered, 41,227 sold with a Pass-in rate of 6.6% or almost 3,000 bales.

To date this season, the average bales sold to the trade per week has been 42,000, compared to 38,200 for last season. There is concern about supply going forward, with a question mark over the capacity for this season to remain above 2016-17. The next few weeks will confirm this one way or another.

The week ahead

Sales are scheduled for all three centres next week with Melbourne conducting a 3-day sale on Tuesday, Wednesday & Thursday. Fremantle & Sydney have a 2-day roster.

A total of 46,490 bales are rostered for next week, almost 2,000 more than this week’s offering; the roster drops away over the following 2 weeks with an average of 41,500 anticipated.

The trend in lamb and sheep slaughter figures this season show pretty clearly that the neighbouring states are picking up the added workload stemming from the Murray Bridge fire out of South Australia. Victorian and NSW lamb and sheep slaughter is trekking well above seasonal average levels and those recorded last season for the week ending 23^rd February, while the opposite is true for South Australia.

Despite Victorian lamb slaughter sitting 21% above the five-year seasonal average, as shown in Figure 1, the total east coast slaughter is only 3% higher for the season with nearly 376,000 head processed in the previous week. In contrast, current SA lamb slaughter is trekking 29% under the seasonal average level for this time of the year.

A similar story for mutton, with NSW slaughter volumes 33% above the seasonal average – Figure 2, while SA mutton slaughter is currently 44% below the average seasonal pattern. The broader East coast mutton slaughter somewhat reflective of the flock rebuild phase with levels trending 11% under the longer-term average but 35% higher than this time last year – Figure 3. East coast slaughter moved slightly higher over February compared to the 2016 pattern as the forecast wetter February period failed to fully materialise.

There was some relief for the last week of February with some reasonable falls across much of the eastern side of NSW and in WA. This provided a bit of a lift to East coast mutton prices, up 7% on the week to close back above 410¢/kg cwt. East coast lamb categories ended the week with flat to small gains (see Table 1.), the benchmark Eastern States Trade Lamb Indicator (ESTLI) up a fraction to close at 624¢/kg cwt.

What does it mean/next week?:

Some very solid rainfall is forecast for Queensland in the coming seven days, but not a lot will make its way further south. Indeed, much of the nation’s prime sheep rearing country will miss out. As Table 1. highlights, most categories of lamb and sheep prices are not too far away from levels seen this time last year. With prices this robust from a historical perspective and nothing much in the way of rain on the horizon as we head into Autumn prices are likely to ease slightly into the coming week.

Across the board the Australian wool market Micron Price Guides (MPG’s) were all quoted higher, the only exception on the AWEX Wool Market Report was the Cardings indicators.

The MPG Indicators however failed to provide the whole picture; underneath the headline report is a more complex story.

The most significant factor in this week’s market was the Au$; by the end of the week it was quoted down US$0.013, sitting below US$0.78 for the first time in 2018. As a consequence, the Eastern Market Indicator (EMI) rallied by $0.08 for the week to close at 1820¢. This picked up all the fall of last week. As well, the Western Market Indicator (WMI) improved 16 cents to finish at 1895 cents.

To complete the currency story and its influence on this week’s market, the EMI in US$ terms fell 17 cents, this meant a cheaper week on week for buyers, and better prices for wool sellers thanks to an easing Au$.

There is another underlying story, at this time of the year there is more “faulty” wool on offer. Lots with higher VM have been steadily increasing, which results in these types receiving erratic competition. There is another side to this story, and that is that FNF types (wool with less than 1% VM), are increasingly difficult for buyers to source and at times extreme prices are bid for particular lots.

The issue of quality has also permeated into the X Bred section of the market. In the past couple of years, it has been the trend to spend less time preparing X Bred wool in the wool shed, with some producers electing to either not skirt or minimal skirt in their wool preparation. When the market is buoyant or under tight supply this preparation model has little impact on prices, however, when the demand softens or supply increases (both currently the situation with X Bred wool), buyers can overlook less prepared types. This is the case now. Buyers can fil orders with “traditionally” prepared wool; poorly prepared lots are then used as bargain buys to cheapen orders.

Of the 41,815 bales originally offered, 39,429 sold with a Pass-in rate of 5.4% or just 2,240 bales.

The week ahead

Sales are scheduled for all three centres next week on Wednesday & Thursday.

A total of 44,506 bales are rostered for next week, slightly more than this week’s offering; the roster drops away over the following 2 weeks with 41,500 and 39,100 anticipated.

Sheep and lamb markets made a bit of a comeback this week. Lower prices had the usual impact, seeing more growers keep their sheep at home, forcing processors to pay a bit more for lambs and sheep. 

The spectre of rain, and of course lower prices put a fair drag on supply this week. Producers baulked at lower prices, with lamb yardings falling 27% to their lowest full week level since mid-September (figure 1).  Sheep yardings took a similar fall, but have been weaker at times this year.

It’s nice when economics work the way they are supposed to. The lower supply saw prices move higher, the Eastern States Trade Lamb Indicator (ESTLI) gained 19¢ to close Thursday at 619¢/kg cwt (figure 2).

Lamb prices are in fact, very similar to last year. However, last year they had jumped 100¢ from December and any lamb that was ready was coming to market, there just wasn’t many finished lambs. This year prices have tanked from December, and growers don’t like lambs at 600¢. It interesting how price expectations can change in a year.

Restocker lamb prices have fallen in line with the ESTLI (figure 3). Lower prices now don’t necessarily mean prices will be steady through autumn, but the market always reacts the same way. If we have indeed seen the price low, it might be a good time to buy store lambs.

Over in the West sheep are the most expensive in Australia, the indicator at 400¢/kg cwt, while Merino lambs had an extraordinary jump, gaining 126¢ to 635¢/kg cwt.

The week ahead

Again it is forecast to rain in Queensland, but some key parts of Northern NSW might get some too this time.  After a dry summer this might be the trigger for a supply pull back, with the ripple effect flowing south.

We don’t expect a strong jump in lamb prices this week, but it’s also hard to see supply ramping up far enough to see values fall back below 600¢.