Tag: Analysis

Sheep slaughter had its second highest week for the year as sheep continue to flow into markets.  There has been little impact on prices however, as with lamb, slaughter is down, there is still kill space to fill.

Chinese mutton demand continues to run hot.  Mutton slaughter was very high last week, yet the National Mutton Indicator remains at very strong levels, at 572¢/kg cwt this week.  Victorian Mutton did come back from record highs, losing 39¢ to 614¢/kg cwt.  Victoria is still the strongest in the state, just not as strong as last week.

Lamb slaughter remains well below last year, despite plenty flowing out of the south. The north-south split remains, but both NSW and Victorian lamb slaughter were 10,000 head below 2018 last week.

Figure 3 shows the Eastern States Trade Lamb Indicator (ESTLI) is still in decline, losing another 20¢ this week to 705¢/kg cwt. The ESTLI is still holding a 44¢ premium to last year, obviously being helped by tighter supply.

The National Mutton Indicator is at a 140¢ premium to last year, so it is doing a lot better.

WA Trade Lambs moved past the east coast this week, up 7¢ to 716¢/kg cwt, which combined with the ESTLI fall saw WA the more expensive.  In Victoria you could almost say trade lamb prices (686¢) tanked, losing 35¢ to be the cheapest lambs in Australia, apart from Tasmania (646¢/kg cwt).

Next Week:

The latest BOM outlook is less than promising for the east coast. If it remains dry we could see supplies remain strong, with females and Merino wethers adding to supply. If it gets wet, lamb prices probably have further to rally than sheep.

Despite the free-flowing supply in the south Victorian lamb prices found some support, while mutton moved to a new record. WA lamb prices have also rebounded strongly and are now not far off the east coast.

It might be that Victorian lambs are finding support from mutton. The spread between the two prices, usually quite large, has this week come into 78¢, with mutton at just a 10.5% discount. The mutton discount is about as small as it gets, but last time it was when restocking was in full flight.  This time it is more about export demand.

Figure 1 shows Victorian mutton sitting at a new record of 643¢/kg cwt, now well ahead of NSW. It might be that fat sheep are coming out of Victoria, supporting the ¢/kg rate, relative to lighter sheep in NSW.

Lamb supplies appear to be tightening in the west, with trade lamb prices rising to a 3 month high of 709¢/kg cwt. Figure 2 shows that lambs in the west are now coming close to their east coast counterparts, after being at a discount for some time.

Mutton in WA remains at a large discount to the east coast.  It seems supply is still outstripping kill space, but as lamb supplies decline we might see some upside in mutton. WA Mutton might not get to east coast levels but should get stronger

Next Week

Lamb slaughter is heading sideways, and it seems it might have hit its limit for now. This obviously bodes well for prices, with 700¢ looking like the support level. There are apparently plenty of lambs booked up for December but some space might become available if mutton supplies decline.

Sheep and lamb markets are doing funny things. Lamb slaughter is well behind the same time last year, yet prices keep falling. Sheep slaughter is the same as last year, and on the rise, but prices remain steady.

Figure 1 shows east coast lamb slaughter, which for the week ending the 15^th of November was 6% below the same time last year. Victorian lamb slaughter was very close to last year’s levels, it was NSW and South Australia dragging the chain.

With Victorian lamb supply starting to flow, the Eastern States Trade Lamb Indicator (EYCI) continued to drift lower. It wasn’t only Victorian lambs that were cheaper, however.  Victorian Trade Lambs were down 26¢ to 703¢/kg cwt, while in NSW they were more expensive but still down 24¢ to 732¢/kg cwt. The ESTLI was not surprisingly in the middle of the two main states, at 718¢/kg cwt (Figure 2).

The ESTLI is still 29¢ stronger than the same time last year, which is partly explained by the lower slaughter.

We looked at the stronger sheep demand earlier in the week and it has continued. Figure 3 shows sheep slaughter lifting again last week to equal last year’s highs. The east coast mutton indicator was steady at 594¢/kg cwt this week, a massive 169¢ premium on last year.

Lamb prices in the West found some strength this week, up 20¢ to 680¢ and a three month high.  Mutton prices are still behind the east coast, at 458¢, while restocker lambs look very cheap at 475¢/kg cwt.  We suspect it was a small yarding.

Next week

There isn’t much rain on the forecast for the next week and the BOM has today given another depressing three month outlook.  It might be more of the same for lamb markets as Victorian supplies continue to flow.

Grower reaction to the recent better wool market resulted in an increased offering, however, this proved too much for the market and it lost momentum this week. AWEX reported that the retracement was across the board, following the weak finish in Fremantle last week.

While the trend for the week was softer, on the final day some support was evident and Fremantle was quoted as “ending on an encouraging note”.

The Eastern Market Indicator (EMI) gave up the 19 cents gained last week to close at 1,555 cents. The AU$ fell marginally by 0.03 cents to US $0.679. This meant the EMI in US$ produced a small retracement, losing 13 cents for the week to 1,057 cents.

The softer market saw the Western Market Indicator (WMI) down 22 cents on the week to close at 1655 cents.

Again, growers were happy to resist the softer market. The pass-in rate increased to 16.1% for the week, up 9% on last week. The national offering of 38,297 bales was a 2,000 bale lift to last week’s volumes. Despite an increased offering, bales sold, at 32,143 was 1,500 bales fewer than last week’s total. This season’s bale clearance continues to lag well behind 2018 at a difference of 100,639 bales. The average weekly bales volume is currently 5,500 behind last year.

The dollar value for the week was $54.37 million, with the average bale value sitting at $1,691, $90 per bale below last week’s average. The combined value so far this season is $841.1 million.

The crossbred sector is following its normal pattern, finding its lows over the past 5 years in November & December. On a positive note, recent history shows a firming trend for the new calendar year. The skirtings market found good support, especially for better style finer types, while cardings remained largely in line with last week.

The week ahead

A relatively large offering is scheduled for next week’s sales with 39,280 bales currently on the roster across the three selling centres. Again we pin our hopes on the encouraging tone observed in Fremantle to the end of Thursday’s sales.

It has been a decade since the Sheep’s Back to Mill was updated. The Sheep’s Back to Mill publication is a record of the cost of harvesting, testing selling and shipping greasy wool in Australia to overseas mills. One of the components of this publication is the proportion of the wool clip which passes through rehandles/bulk class facilities. This article takes a look at wool preparation in the clip, which in turn determines how much wool passes through rehandling facilities.

The latest Sheep’s Back to Mill (for 2009-2010) is available here. Traditionally this publication develops the cost of rehandle (‘bulk class’) by using the AWTA fee applied to the proportion of the clip sold in this manner. This method underestimates the cost of putting wool through a rehandle.

There is often a mismatch between the grower being paid out on rehandle wool and when the rehandle wool (which is aggregated with like wool from other growers) is sold. For this reason and the extra work involved, the broker will make a margin on the rehandle wool. It is a grey area that is not transparent and rehandles are profit centres in the broking business, so the less wool put through rehandles the better for growers. The counter-argument is that farmers can end up with parcels of wool (bags and butts) which are not large enough to make up a sale lot. Such small lots are legitimately aggregated into sale lots in good rehandles.

At Australian auction sales, wool is offered with an IWTO approved test certificate which shows the wool preparation standard for the lot (commonly known as the ‘cert type’). Table 1 shows the proportion of wool sold (clean basis) at auction during the past eight seasons by ‘cert type’. P certificate wool is a classed grower lot that meets the AWEX Code of Practice (COP) standard while the D certificate is a grower lot that does not meet the AWEX COP. I stands for Interlot wool. The Q and B suffix denote wool which has gone through a rehandle. Q certificate wool meets the AWEX Code of Practice while B certificate wool does not. Table 1 shows that between 10% and 11% of the Australian clip sold at auction passes through rehandles.

Figure 1 provides a breakup of wool sold at auction in 2018-19 by breed on a clean basis. Merino (and superfine) accounted for 78% of wool sold while crossbred accounted for 21%. Downs, carpet and other categories (such as runs with) accounted for 1% of the sales volume.

Table 2 breaks each breed up by wool preparation category. Some 7.6% of Merino wool (nearly 8 bales in one hundred) was processed through rehandles, with 17% of crossbred wool handled through rehandles. Note also the low level of P wool preparation standard for crossbred (45%) which reflects the decline in the standard of crossbred wool preparation in recent years.

What does this mean?

Some eight bales in one hundred of the Merino clip are processed by rehandles, which as an average seems high. Rehandles are not a charity – they have a cost. Marketing begins on the farm with judicious packaging of wool for sale, which meets the AWEX Code of Practice, not in Paris or Milan.