Category: Sheep

If last week in the midst of global turmoil the wool market caught a cold, this week it had “full-blown influenza”. Despite the Au$ free-falling, the wool market was hit hard with buyers reducing limits continuing the EMI downturn for the sixth consecutive day.

From the outset, the market was significantly cheaper with 100+ cent falls across the board.

The Eastern Market Indicator (EMI) lost 83 cents or 5% for the series to close at 1,438 cents. The Australian dollar collapsed losing almost US$0.09 to be quoted on Thursday at US$0.557. This cushioned the effect on sellers however the EMI in US terms was down 181 cents to 801 cents. This was a massive 18% fall and the lowest the EMI has been in US$ terms for over ten years. A sign that the global impact on trade is now clearly transferred into the wool market.

The Western Market Indicator performed better than the East, giving up 78 cents on the week to close at 1,538 cents. There were positive signs late on Thursday where the W.A. market clawed back some ground. However, W.A. brokers passed in 34.1% of the 8,066 bales offered, selling just 5,317 bales. 

While just on 50,000 bales were rostered nationally, almost 8,000 were withdrawn prior to sale resulting in 41,986 bales offered. Only 30,871 bales were eventually sold resulting in another high pass-in rate of 26.5%.

This week the total sales value was $46.49 million or $1,505 per bale, this is around $200 per bale lower than the seasonal average.

Crossbred types again showed the only positive moves with small gains in the 30 & 32 MPG’s although the finer crossbreds fell in line with the merino section. The Cardings indicators were not spared falling in all centres by 50 to 80 cents. 

The week ahead

Another large roster is listed for next week for with 49,874 bales rostered, with Melbourne again selling over three days and all centres selling on Wednesday & Thursday.

In “normal” conditions the collapsing Au$ would be a stimulant for buyers to purchase at lower US$ levels. These certainly are not “normal” times, with probably the only certainty that it will be much less than the 49,000 bales rostered that is eventually sold next week.

After three months of relatively robust numbers, the latest AWTA volume data reverted to its expected trend, with farm bales tested in February down 11%. This article takes a look at annual AWTA and auction sales data.

While AWTA core test volumes are the best measure of greasy wool production in Australia, they are only part of the supply story as farmers can choose to hold stocks of wool back from sale.

Figure 1 shows the annual volumes of AWTA core test data (in thousands of metric tonnes clean) from the late 1990s to the current season to February, The current season is projected using the current drop in clean volumes of 7.4% which is probably too conservative. There is another 30% of the clip to be tested in the final four months of the season and it is likely these volumes will be lower compared to year-earlier levels, dragging the full season fall in volume below 7.4%.

Note in Figure 1 how the clip volume steadied around 2010 and held through to 2017-18 before drought dragged it lower again. At this stage, an Australian clip stabilising somewhere between this and last seasons volume (186,000 to 200,000 clean metric tonnes – 1.6 to 1.75 million farm bales) would be a good outcome. The supply chain would like an increase in supply but that will take some time with good relative prices and seasonal conditions to achieve.

Figure 2 compares auction sales volumes to AWTA volumes. The two are not strictly directly comparable as there are time lags between wool being tested and sold. Anyone who has spent time trying to finely correlate these two series will have come to realise there are differences between them that cannot be “polished away”. Note in Figure 2 that the proportion of wool sold at auction has ranged between 80% and 88% since 2005. The gap is accounted for by farmer stocks and out of auction sales.

The current season presents a big departure in behaviour, with auction clearances dropping to 70% of AWTA volumes. This implies some 10% of the season to date production is being held as stocks by farmers. Price fell heavily in 2003 and 2011-12 without a big reaction in terms of sale clearances. The concerning thing about this increase in stocks is that farmers have a record of holding the stock as prices fall but later offloading when prices are low. Holding stocks when prices thump down as they did early in the season is reasonable but an exit plan is needed for these stocks.

What about the switch to lamb production? Figure 3 shows the proportion of crossbred sales (a sub-set of the data used in Figure 2) to total AWTA volume, in clean terms from the late 1990s to the current season. Crossbred wool stabilised around 16% of AWTA volumes from 2012 onwards, after climbing steadily from the late 1990s.

What does this mean?

AWTA volumes look set to finish the season between 7% and 10% lower in clean terms, which will mean a total drop of 20% for 2018-19 and 2019-20 combined. Grower stocks have increased this season, with sales clearance down by 10-15% on annual numbers from the past decade. So far COVID-19 has only interfered with supply chains, but it will be having some effect of retails sales starting in China, the consequences of which are yet to be felt in the greasy wool market. This factor suggests an exit plan is needed for the new farmer wool stocks.

Sheep and lamb yardings have dipped to levels more consistent with the mid-winter lull in supply in response to 50-100 mm rainfall across much of western NSW and central Victoria this week. Slaughter levels remain in the doldrums too with the tight supply continuing to provide price support.

Weekly east coast lamb yardings dropped a massive 54% with just over 100,000 head presented at the saleyard for the last week in February (Figure 1). This represents a level 40% under the five-year pattern for this time in the season and more akin to what you would expect to see in the depths of winter when lamb supply is at its tightest.

The dearth of lambs is encouraging the appropriate price response with Meat and Livestock Australia’s NLRS service showing all national and east coast categories of lamb posting price increases this week. The Eastern States Trade Lamb Indicator (ESTLI) gained 3% to finish at 962¢/kg cwt. This bested the previous all-time high achieved in mid-July last year by 11¢.

Weekly sheep yarding levels softened too during the final week of February. They were down 55% from the week prior and trended 44% below the five-year average pattern at just under 43,000 head yarded (Figure 1). Despite the lower sheep numbers, the National Mutton Indicator eased slightly, off 1% to 683¢/kg cwt. On the east coast, mutton prices were softer too this week, but NSW and Victorian saleyards still averaged prices above 700¢ so producers there can’t be too despondent.

Although, despondent is a good descriptor for weekly east coast slaughter levels for both lamb and sheep as the high saleyard prices and tight supply are encouraging low volumes at meatworks. East coast lamb slaughter is trending at the lower end of the normal seasonal range, around 9% under the five-year average pattern (Figure 2).

Weekly east coast sheep slaughter levels continue to probe lower, breaching under 100,000 head at the end of February to sit 26% below the five-year average pattern and a whopping 41% under the sheep slaughter levels seen at this time last season (Figure 3).

Next week

Limited rain is forecast for the coming week across NSW and Victoria, with most regions lucky to get above 10mm. Much of SA and WA are set to miss out entirely. Despite the respite in rainfall, the tight supply should be enough to keep sheep and lamb markets ticking along with prices holding stable to slightly firmer.

In what was a somewhat stellar performance this week, the wool auctions returned after the ransomware attack on the Talman system, to post a result that underpins the current strong demand for wool. The market was able to absorb a record volume and hold prices relatively steady. This at a time when the world of commerce is impacted by COVID-19 virus spreading across the globe, giving support to the notion that the tight stocks situation will support prices in the medium term.

The Eastern Market Indicator (EMI) compared to 2 weeks ago overall lost 19 cents to close at 1,562 cents. The Australian dollar remained under pressure at 0.662 cents. This pulled the EMI in US terms down 17 cents to 1,034 cents.

In the West, the market had a tougher week, The Western Market Indicator giving up 48 cents on the week to 1,662 cents.

The backlog of wool as a result of last week’s sale cancellation meant a massive 62,166 bales were offered to the trade, with a clearance of 47,421 bales. AWEX report this was the largest weekly offering since 2008, and the largest clearance since April 2018. While on the opening day the market held firm, towards the end of the week the increased volume caused prices to soften (especially for secondary types) and the pass-in rate to lift, averaging 23.7% over the week.

The dollar value for the week was $81.07 million, for a combined value so far this season of $1.492 billion. The average bale value was $1,709.

Crossbred types held steady with small gains; 26-micron wool again showed strength on limited volume gaining 8 cents in the South. The Cardings indicators eased in all centres giving up 15 – 24 cents over the week.

The week ahead

AWEX advises the roster for next week is 46,680 with all centres selling on Wednesday & Thursday.

The market then reverts to its usual volumes of 34,000 & 37,000 bales in subsequent weeks. This indicates that the backlog of wool as a result of the cancellation of sales last week will be cleared by the end of next week.

The market eased as the week progressed, however, this could be a response to the record weekly volume, so a close watch on pre-auction sales activity and Riemann Futures trades will provide the best indication of next weeks price direction.

Mutton prices broke through 700¢ on the east coast this week, an extraordinary price given the only place you find it in Australia is in some meat pies. It’s a funny coincidence that this week the announcement came of the impending ‘meat-free pie’ launch. 

Mutton was originally added to the recipe for the famous Four and Twenty Pie as a cheap substitute for beef, and they’ve never been able to get it out without impacting the taste.  Now it seems all the meat is gone and the taste is the same, but it’s not going to impact demand for mutton and by all reports ‘meat-free meat’ is still expensive to produce.

This week the east coast mutton indicator broke through 700¢ for the first time, finishing Thursday at 717¢/kg cwt. Mutton is above 700¢ in both NSW and Victoria, and as figure 1 shows, now more expensive than trade lambs in WA. The rally has been extraordinary.

The Eastern States Trade Lamb Indicator (ESTLI) also moved higher after some brief respite for buyers late last week. The ESTLI is poised for new highs, but the appetite for higher prices from processors might be waning.

Figure 1 shows east coast lamb slaughter was down 16% on the same week last year for the week ending the 21^st, while mutton was back 25%. There is currently 100,000 head of slaughter space which was being used last year, that is now going unfulfilled. We are probably now at the levels where processors are buying sheep and lambs to keep workers busy, as they will lose more by closing down, than killing at a loss.

The east coast restocker lamb indicator this week sat at 1056¢/kg cwt. There is money to be made if the feed is cheap enough. The trucks will have to start rolling from the west soon, as 45kg lambs there cost the same as a 32kg lamb on the east coast.

Next week

For sheep and lamb prices to fall, either supply has to lift, or demand weakens. It is hard to see supply increasing, with any available lambs being sold into record prices. Demand for finished lambs could weaken if a processor or two-bite the bullet and cut production. However, restockers are going to keep a floor under light lambs, which will continue to support trade lambs and flow through to the heavier end. Restocker demand will drive mutton markets too.

This week the Australian wool market was forced to cancel all wool sales due to a cyber attack on the Talman IT platform. While not the only provider of IT systems to the industry, Talman is the largest supplier of in-house wool IT systems in the world.

According to Talman, 75% of the Australian & New Zealand wool industry uses Talman’s software solutions. These services span auctions, delivery, dumping, and overseas export & processing.

In the case of wool brokers, the Talman system allows the broker to manage their pre-sale, auction, post-sale and shipping requirements.

A demand for ransomware was made, with the databases locked and the attacker encrypting all the files. Talman has assured the wool industry that the data had not been compromised.

There is some industry concern that the building of stock as a result of this week’s sale cancelation could dampen down what was expected to be a stronger wool market this week. Buyers were reporting that the lower Au$ had stimulated buying orders.

Coupled with shipping and finance difficulties as a result of the Covid-19 virus impact in China, processing demand could be impacted.

There is a counter view that the reduced sheep flock and therefore wool supply, and the run-down of stocks in China could mean that buyers move strongly to secure supply in next week’s sale.

This makes for an interesting scenario when sales resume, as the “black swan” events of Covid-19 and the Talman ransomware issues weigh against the positives of a lower Au$, reduced supply, and diminished stocks to determine wool market direction.

The week ahead

AWEX advises that sales will re-commence on Monday, March 3^rd, with a sale that could include two weeks of rostered wool.

With last week’s roster listing 44,000 bales for this week, and a further 35,000 bales for next week, we could see almost 80,000 bales come under the hammer. While this could be seen as a daunting task for the market to absorb, its worth remembering that in the first 2 weeks of 2020 the wool auctions cleared 91,000 bales.

Weekly yarding levels continue to contract and processors are responding to higher lamb and sheep prices with reduced slaughter volumes. High prices this early in the season are putting meatworks on notice that the seasonal winter peaks in lamb and sheep prices could reach historic records but the autumn break in the southern regions needs to be in a cooperative mood.

For the first time this season, weekly east coast sheep yarding levels have moved below the five-year average pattern, reflecting the tightening ovine market. Sheep yardings for the week ending 14^th February dipped 1% below the seasonal average trend to come in under 86,000 head (Figure 1).

Weekly lamb yarding levels across the east coast dropped nearly 20% through the first two weeks of February. At this level, yardings were 12% below the five-year average seasonal pattern at nearly 160,000 head.

Patrick Hutchinson, CEO of the Australian Meat Industry Council (AMIC), came out earlier in the week expressing his concern over the impact of a livestock drought on processors once the rains arrived and by the looks of the combined lamb and sheep weekly slaughter volumes, meatworks is already starting to feel the pinch. Slaughter volumes across the east coast have been averaging weekly levels of 8% under the five-year trend for the past month (Figure 2).

We are not even out of summer yet and the Eastern States Trade Lamb Indicator (ESTLI) is comfortably above $9 a kilo on a carcass weight basis and probing levels we didn’t see until mid-winter in 2019. The National Mutton Indicator (NMI) is hovering around price levels that the ESTLI was fetching at this time last season. Indeed, the NMI closed last week at 663¢/kg cwt, 20¢ higher than where the ESTLI was on the same date in 2019.

The Bureau of Meteorology (BOM) updated its three-month outlook yesterday and it shows for the autumn break that there is a chance for a slightly drier result in western NSW. However, the bulk of the southern regions can expect a 50/50 chance of a wetter or drier outcome (Figure 3). While it isn’t the best result producers can expect, it is a much-improved prospect than they were facing this time last season.

Next week

At least over the short-term horizon, the rain is still coming, and with the summer temperatures, there is enough warmth to continue to encourage grass growth. The BOM is expecting 5-25 mm of rain to fall across eastern NSW and eastern Victoria in the coming week. Falls of less than 5 mm are expected for parts of western NSW and western Victoria. Unfortunately, SA misses out, but southern WA can expect 10-15mm.

Despite the unlucky SA producers’ prospects for rain this week there should be enough about to keep supply tightening and to provide continued support to lamb and sheep prices into next week. I’m heading to the Weekly Times Coles 2019 Farmer of the Year Awards in Melbourne tonight so any Mecardo subscribers come and say g’day. Good luck to all the contenders.

Remember to listen to the Commodity Conversation podcast by Mecardo

Another week gone and another relatively steady wool market, considering the environment of our major buyer. The industry is still chattering with worry about factory and bank closures, and supply chain disruptions In China yet we’re not seeing these disturbances sift through to buying activity.

The Eastern Market Indicator (EMI) improved 13 cents on the week to close at 1,581 cents, recouping last weeks fall of 9 cents. The Australian dollar reached an 11 year low on Thursday finishing at 0.665 cents. This pulled the EMI in US terms down just 3 cents to 1,052 cents.

In the West, competition proved strong on both days of sale. The Western Market Indicator rose 43 cents on the week to 1,710 cents.

Higher yielding, better style wools were keenly sought in all centres and attracted gains of 40 to 100 cents. It was noted that lesser style low yielding wools didn’t receive as much interest, however, any discounts were lower than the week prior.

40,891 bales were offered to the trade this week. The positive buying sentiment and price improvements saw the national pass-in rate drop from last weeks 22% to 11.3% this week. This meant 36,287 bales were cleared to the trade.

The dollar value for the week was $62.26 million, for a combined value so far this season of $1.411 billion. The average bale value was $1,715.

Crossbred types saw mixed results across types and selling centres on a limited selection. 26 micron wool gained 30 cents in the North, while the south lost 15 cents. The Cardings indicators saw little movement on the week with just a 3 cent fall in the east and 10 cent gain in the west.

After a few weeks of inactivity, a number of trades dealt on the forwards market this week, in what is another positive sign for the wool market.

The week ahead

After the initial flinch in response to the COVID-19 outbreak, the wool market is proving stable in a quivering trade environment. Unlike many other sectors, the wool supply chain has security in a non-perishable product with greater flexibility to handle delays and disruptions.

A strong finish to this week’s sales in Western Australia is typically a good sign for the coming week, and brokers are quietly confident. Next week 44,091 bales are rostered for sale across the three centres, with a designated superfine sale in Sydney. 34,933 and 35,955 bales are currently expected for the weeks following.

Sheep and lamb markets continued to boom this week, with supply tight and demand apparently remaining strong. There is serious support from restockers, who appear to be driving the rise, as grass grows and mouths are sought.

Figure 1 shows in part what is driving the remarkable rally that we are currently seeing. In the first full week after the Australia Day holiday, total sheep and lamb slaughter could only recover to 470,354 head. This figure was 9% lower than the same time last year. It took until June for supply to tighten this much in 2019.

It shouldn’t come as too much of a surprise though. Heavy rains in key sheep regions in NSW will see very few stock from those areas hitting the market. Additionally, demand for restocker lambs has exploded and is creeping into light and trade lamb sectors, helping push prices higher.

On Thursday night the Eastern States Trade Lamb Indicator had hit 905¢/kg cwt, up 76¢ for the week, and just 40¢ shy of the all-time high hit last July (Figure 2).

Restocker lambs have hit a record. In NSW this week, the average price for restocker lambs was 1,023¢/kg cwt (Figure 3).  This is the first time any indicator has been through the $10 mark, and shows the extent of restocker demand. Restocker lamb prices have risen 30% this year.

Mutton also hit a record, with the east coast indicator at 683¢ on Thursday. Previous highs for mutton, from last July, were around 620¢/kg cwt. Obviously, we are way past that.

Amid all this, Trade Lambs in WA are making just 648¢ and mutton 439¢.  At these levels, there is lots of incentive for lambs and sheep to make their way east.  A 20kg cwt lamb is worth $180 in the east, and $124 in the west. There is plenty of fat after freight, especially for restocker lambs.

Next Week

It is so early in the season to have extreme prices. All the charts look rather unsustainable.  Lamb producers can point to trade lambs maintaining prices around 900¢ for three months in the winter, which may have seen export markets get somewhat used to high values.

It is hard to see demand for restocker lambs waning, and supply has no chance of increasing until the spring. It would be extraordinary to see restocker prices maintain levels above $10, but it has been 100 years since there were this few sheep in the country and grass supply is booming.