Tag: Analysis

Cedar shutdown impacts mutton not lamb

Posted on by Caitlin Dearden

The big news in sheep and lamb markets this week was the two week shutdown of Cedar Meats, which has had an impact on sheep prices, if not lambs.  Support for prices has been robust, with restocker demand and tight supply continuing to provide support.

Cedar Meats have the capacity to slaughter 10,000 sheep, lambs, goats or calves per day, but it is unlikely they have been running at full capacity in recent times.  We will have to wait until Tuesday to see how slaughter has been impacted.

We did get an inkling from the data for the week ending the 1st May, with the Friday closure of Cedar helping east coast lamb and sheep slaughter decline 7% and 16% respectively (figure 1).

Weaker competition at saleyards didn’t impact lamb prices, which moved sideways, the CV-19 Indicators down just $3 to $199/head.  Mutton markets did feel the impact of weaker demand, falling $14 or 6%.  There was some hope late in the week, however, with Wagga reporting strong demand for sheep, as seen in recent weeks.

Domestic markets and restocker demand still seem to be propping up lamb markets.  In the export-focused WA market, over the hooks prices are quoted at 750¢, while on the east coast they are 790-810¢.  The National average of MLA’s Trade Lamb Over the hooks Indicators has been tracking sideways (figure 2).  It has been way behind saleyards, but they have come back closer now.

Export data for April was released this week, and as expected, Chinese lamb demand is bouncing back, while the US was down.  For mutton, almost all markets were down, but like lamb, the lack of supply means it has to be down.  More on exports next week

Next week.

There is plenty of space slaughter capacity in the system at the moment, so there shouldn’t be any backlog from the Cedar shutdown, and we might even see mutton bounce when they are back in the market.

It will be interesting to see if ovine slaughter can fall any further, we are at last year’s mid-winter levels now.  For producers, it’s a bit depressing to think where prices might be had COVID-19 not taken hold, but we can just be thankful we’re not in the position of US cattle and hog producers.

A positive result (and not for Covid19)

Posted on by Caitlin Dearden

Improved finished cattle prices were noted this week as supply metrics begin to normalize, particularly for east coast cattle slaughter. Department of Agriculture, Water and Environment beef trade statistics for April show Chinese demand for Aussie beef recovering strongly too as an added positive sign for producers.

East coast cattle yarding levels have held firm at around 45,000 head for the final week of April and the first week of May, indicating some stability is returning to the market after some wild swings pre-Easter (Figure 1).

Weekly throughput remains 20% below the five-year trend but is within the normal range for this time in the season, as represented by the grey shaded 70% range zone. In an interesting dynamic between state yarding levels, Queensland is running 25% above the five-year trend as of early May. However, NSW cattle yarding is well below normal at 53% under trend. This is contributing to the lower than average total east coast figures and is perhaps a sign of the appetite in NSW from producers to restock.

East coast cattle slaughter numbers have returned closer to the five-year trend, to sit just 5% below with around 135,000 head processed in the first week of May (Figure 2). Since the Easter lull, slaughter volumes have increased 27% and the return to relatively normal operations have seen demand pick up for finished cattle this week. The National Heavy Steer (CV19) indicator has lifted 4.5% since the end of April to close at 320¢/kg lwt (as at 6th May).

In further promising signs for beef producers, beef export flows were above the five year average pattern in April (Figure 3). While US flows remain very subdued, a strong increase in exports to China is a good sign that their economy is getting back on track post their COVID-19 shutdown. There will be more to come on this in the Mecardo analysis piece next week.

Next week?

Tight supply and a favourable rainfall forecast continue to favour cattle producers and provide underlying support to prices. While there are headwinds in the form of a disrupted US/global economy, low global cattle prices, and a strengthening Australian dollar, the sign of a re-emerging China should tip the balance towards a more optimistic outlook for prices, at least for the short term.

Good morning Vietnam.

Posted on by Caitlin Dearden

Key points:

  • The monthly flow of Australian live cattle exports for the first quarter of 2020 are running 28% above the average seasonal trend.
  • Flows to Indonesia during March dropped to nearly 10% below their normal seasonal levels, according to the five-year average trend.
  • Exports to Vietnam during the January to March period have averaged 189% ahead of the five-year trend, lifting market share of export volumes to Vietnam markedly in 2020.

Live cattle export flows have been strong for the first quarter of 2020, despite Covid-19 disruptions. Although there has been a noticeable shift in market share with Indonesia giving up ground while Vietnamese demand expands.

Figure 1 highlights the total flow of live export cattle for the start of the 2020 season compared to last season and the five-year trend. Average monthly flows for the first quarter of the year are running 28% above the seasonal trend with volumes near the upper end of what is considered “normal” for this time in the year (as outlined by the grey shaded 70% range).

After a strong result for February at 96,174 head volumes have eased 14% in March to record 82,468 cattle sent with flows to Indonesia nearly 10% below their normal seasonal levels, according to the five-year average trend for March.

However, total flow volumes were boosted by stronger than average exports to both China and Vietnam. Over the first quarter of 2020 live cattle exports from Australia to China have averaged 73% ahead of the five-year seasonal pattern.

However, the real growth has come from Vietnam as flows over the January to March period have averaged 189% ahead of the five-year trend – Figure 2. Indeed, the growth in the Australian live cattle trade to Vietnam has been robust enough to see a significant lift in market share this season.

During the 2015 to 2019 seasons Vietnamese market share averaged 20%. This has lifted to 34.5% during the first quarter of 2020 and has come at the expense of flows to Indonesia, currently in the grips of a Covid-19 pandemic – Figure 3. Indonesian market share has averaged 53% over the 2015 to 2019 seasons and has dipped to 39% for the first quarter of 2020.

What does it mean?

At Mecardo we have regularly commented upon the fine work Meat and Livestock Australia have achieved in our red meat export space for chilled and frozen product helping to diversify the reach of the sector and creating high value markets for Australian producers across a range of offshore destinations.

Diversification of a customer base is a useful way to bring increased stability to an industry with less reliance on one key destination. It is comforting to see the volume of exports of live cattle continuing to expand in Vietnam, particularly at a time of significant global uncertainty.

The important role of wet markets has been discussed in the rural press recently. They perform a crucial role in food security and access to meat protein for developing countries where access to cold store in home and reliable electricity isn’t like we enjoy in the first world.

Growing diversity in the live export sector continues to support food security and wet markets in our key trading partner’s countries and is a valuable segment of the broader Australian red meat sector.

 

The numbers deteriorate

Posted on by Caitlin Dearden

It is now almost a weekly theme for the wool market to post lower prices, with high pass-in rates and pre-sale seller withdrawals contributing to low volumes purchased by exporters. Much of the blame this week can be sheeted home to the strong Au$ however this was no consolation for growers who again witnessed a tough market to sell in.

For April only 140,386 bales were offered with just 77,703 bales sold after 18.6% of the offering was withdrawn before sale and a further 19.0% passed in. For April the EMI averaged 1273 cents. Over the same period last year 143,000 bales were sold to the trade with the EMI averaging 1946 cents.

As a result of the depressed market there is a growing stock of wool in broker stores as reported by Andrew Woods on Mecardo, this is estimated to now be up to 11% of annual production.

The Eastern Market Indicator (EMI) gave up 47 cents for the week to close at 1,225 cents. The Australian dollar was quite strong rising by 2.26 cents to US$0.663, which supported the EMI in US$ terms, down just 2 cents to 800 cents. The Western Market Indicator also came back 48 cents to close at 1,310 cents.

Turnover this week was $21.92 million at $1,288 per bale, taking the year to date value to $1,778 million.

The pass-in rate was higher at 25.7% nationally with 17,018 bales cleared to the trade. 10.3% of the original offering was withdrawn prior to sale with Sydney & Fremantle selling only 3,606 & 3,775 bales respectively. Season to date there have been on average 7,023 bales fewer sold per selling week compared to last season.

AWEX reported that the falls were across the board, with Merino types losing 39 – 89 cents and Cardings down on average 24 cents. The 32 MPG fell to 271 cents, hitting its lowest point since AWEX reporting began in 1997/98.

The week ahead

Next week a national total of 26,924 bales will be offered with Fremantle selling only on Tuesday, Sydney Wednesday only and Melbourne on both days.

As if we needed any reminder, these are highly uncertain times and definitely not providing any levels of confidence to the wool market.

Cattle off highs but far from disaster

Posted on by Caitlin Dearden

Key points:

After battling with drought for over two years Australian cattle producers are currently the envy of global cattle producers.  In the US most notably, but also in South America and Europe cattle prices are tanking, while ours remain in the upper echelon.

Earlier in the week, we looked at US cattle values, with bottlenecks depressing prices now, and likely for most of the year as supply backlogs are cleared.  In South America, uncertainty and falling kill rates have also impacted price, but not the extent of the US yet.

Here cattle markets have remained relatively resilient.  No doubt the post-drought tight supplies, and strong demand from restockers has helped on the east coast, but in WA prices remain similarly strong.  In fact, the MSA Yearling is at 590¢/kg cwt, over the hooks, which is a few cents higher than NSW.

Supply hasn’t improved after the Easter break, last week languishing well below average on the east coast (figure 1).  There are no surprises here, with tight supply being exacerbated by a shift to online selling.

With supply down, demand has eased somewhat to match it.  After the initial fall, saleyard prices have steadied (figure 2).  Historically cattle prices are still very good, with the National Heavy Steer Indicator at the 89th percentile, Feeders at the 88th and Cows at the 83rd over 15 years.  Prices have been a lot better in recent times, but historically prices this strong are a rare occurrence.

Meat and Livestock Australia (MLA) released their cattle projections this week, and it seems cattle supplies are going to stay tight.  Next week we’ll have more on what this means for price.

Next week.

If the southern autumn break hadn’t arrived, it did this week.  Figure 3 shows widespread rains in all key southern cattle areas this week, and this is likely to ensure supply remains tight.

Young cattle demand is unlikely to weaken, but store prices can only hang on as long as finished cattle prices stay at solid levels.  The finished market test will come when US slaughter ramps up again, and we see some real price competition in Japan and Korean markets.

 

Wet, wet, wet (even in NSW)

Posted on by Caitlin Dearden

Throughput returns to normal, but slaughter levels remain low with processors watching export market activity as a higher A$ and Covid-19 disruptions continue to cause concern. Restocker lamb prices are probing higher as soil moisture indicators suggest pasture will be plentiful, particularly in NSW.

Throughput figures are in now post the Easter lull in market activity and they show that east coast sheep and lamb numbers are back to normal. Last week east coast sale yards recorded nearly 185,000 head of sheep and lamb, 4% ahead of the five-year pattern for this time in the season – Figure 1.

Unfortunately, the same cannot be said for slaughter volumes with levels still trending at the lower end of the usual range. Figure 2 outlines the trend for 2020 which shows slaughter volumes sitting 15% under the average pattern at a fraction over 360,000 head on the east coast.

Seemingly, concerns around global economic growth declines in the face of Covid19 troubles impacting offshore sheepmeat demand and a higher Australian dollar (up a cent this week to trade at 65.30US¢ today) keeping processors somewhat subdued.

The MLA CV19 indicator for processor lambs stuck in a sideways pattern for much of the week at just over $200/head and unable to test back toward the recent highs seen in early March of close to $240.

Although, it’s a different picture for restocker lambs. Since the start of April restocker lamb prices are up nearly 20% to close at $165 yesterday. Indeed, they are only a few dollars short of making new highs this season and compared to the previous market peak in early March are currently sitting 3% higher.

A glance at the root zone soil moisture on Figure 3 gives an indication as to why restockers are optimistic about the prospect of good pasture with very much above average figures displayed for much of the east coast sheep country.

What does it mean/next week?:

The southern states are getting a wintery blast this week and it is set to continue into next week. Good rainfall prospects and tight supply continue to favour producers and support prices, particularly for breeding ewes and restocker lambs.

However, the strengthening A$ and an uncertain picture for offshore sheepmeat demand is acting as a bit of a headwind on the usual autumn/winter seasonal price lift.

Wool falls and strong sheepmeat bad news for wethers

Posted on by Caitlin Dearden

Key Points

  • Covid-19 has seen the fall in wool prices accelerate, while sheepmeat values are still strong.
  • The 19 MPG is at all-time lows relative to the ESTLI.
  • Low returns from wool might see a renewed push to dual purpose and crossbred sheep.

The Coronavirus has seen plenty of volatility hit all markets, and wool and livestock have not been immune. Wool has copped the brunt of the fall, while sheepmeat values have largely held their ground. The flock rebuild is on, but the spreads between meat and Merino wool might influence what sort of sheep are added to the flock.

Wool prices have tanked in the last month, losing 18% to hit a three and a half year low. Wool prices are inherently cyclical, and this has once again been proven, with some help from the COVID-19 crisis.  Supply hasn’t increased, but demand has evaporated.

Lamb and sheepmeat prices are less impacted by cycles, with consistently improving demand seen over the last 8 years. Lamb demand may weaken with the COVID-19 crisis, but tight supply is currently seeing prices hold firm.

The difference in recent price movements has seen an all-time low reached for fine Merino wool prices relative to the Eastern States Trade Lamb Indicator (ESTLI).  Figure 1 shows the Southern 19 Micron Price Guide (MPG) and the ESTLI, and the 19 MPG premium over the ESTLI in percentage terms.

We had to estimate the ESTLI for recent weeks, but the results are unlikely to change much. Last week the 19 MPG was at just a 69% premium to the ESTLI, the lowest relative level on record. It has been rare for the 19 MPG to be lower than double the ESTLI, while in 2019 the average was 173%.

The 10 and 20 year averages are both between 170 and 180%, which has been enough to see the decline of the Merino wether, and to a lesser extent Merino ewes.  Crossbred sheep have replaced Merinos, and the current dynamic is likely to see this continue.

Figure 2 shows how relative prices affect modelled income per DSE. The model uses 5kgs of 19 micron wool with 72% yield for wethers, which are 1 DSE.  For Merino ewes, the numbers are based 4.5kgs of 19 micron wool, and 0.7 lambs weaned at 30kgs at 1.5 DSE. We know a lot of Merino producers do better than this but this is the national average.  Crossbred ewes are producing 4kgs of 32 micron wool yielding 66% and 1.25 lambs weighing 35kgs, but they equate to 2 DSE.

There is little arguing with Merino wethers having record low income compared to both Merino and composite ewes. Merino ewes meanwhile have rarely had income more than $10 per DSE lower than crossbred ewes, but that is where it sits now.

What does this mean?

With Merino wethers making well over $150 per head, it will be hard to justify holding onto them for the wool cut this year. Abundant feed in areas recovering from drought will help, but if the price spreads between wool and sheepmeat persist it will continue, and possibly accelerate, the move towards dual purpose or meat sheep at the expense of fine wool Merinos.

A majority of joinings had taken place before COVID-19 hit, as we aren’t going to see impacts on flock structure, and lamb supplies until next year. The lower wool price might help support sheep supplies, however, which are expected to be very tight this year.

Slaughter way back but prices steady

Posted on by Caitlin Dearden

Sheep and lamb markets are past the Easter break, but we’ll have to wait until next week to see how supply came through. The two Easter impacted weeks saw very low slaughter, and it will have picked up this week, with prices seemingly maintaining historically strong levels.

We can see in figure 1 that processors took the opportunity to cut back kills markedly over Easter.  In the week before Easter, there were 66,270 lambs killed per day (assuming a 5 day week).  The two weeks either side of Easter saw daily slaughter down to 36,046 head, that is 24% fewer lambs per day.

For mutton, the fall was even more marked, down 31% to just 10,306 head per day.  In winter last year we saw daily kills test these levels, but we haven’t seen things tighter at any other in recent memory.

Low slaughter rates are likely a combination of tight supply and weakening margins for export processors impacting demand. Usually, when supply tightens like this, prices rally strongly, but the last couple of weeks has seen the CV-19 Indicator sit at $214/head.

Restockers remain very active, with social media pictures illustrating the plentiful green grass in NSW.  Why wouldn’t you pay $158 (the CV-19 Indicator) for a store lamb, when grass is cheap and it can be turned out in July at $200+.

Mutton prices are benefitting from tight supply, and the weak slaughter is likely solely due to that.  At $175/head on average and over $200 for heavier sheep, there aren’t too many unproductive sheep which will survive the winter.

What does it mean/Next week

The tight supply is likely to continue which will support prices in the week ahead. There is still plenty of scope for re-stockers to build numbers on the available grass, and with the forecast for further rain, they are likely to be further encouraged.

Easy tiger – Grass Fever

Posted on by Caitlin Dearden

Key points:

After a few discussions this week with producers excited about the latest BOM rainfall forecast I thought it prudent to issue a bit of a cautionary note. As outlined in my comment last fortnight US beef markets are in a free fall and keen restockers need to take note of this offshore situation as grass fever now may cause a Corona inspired hangover next season.

Late last week the Bureau of Meteorology issued a great looking three-month rainfall outlook showing 60-75% chance of exceeding the median rainfall across much of the country thanks to warm waters in the Indian Ocean pushing moisture across the continent – Figure 1.

In the last week, I have talked to many keen producers with available feed they haven’t seen in a while considering what is the best cattle trade to put on. Despite offshore beef market uncertainty and the prospect of a deep global recession, it seems grass fever is beginning to take hold.

Since the start of January US Live cattle futures have declined 30% falling from 275 US¢/kg to trade under 190US¢/kg this week as processor shutdowns due to Coronavirus infection at a number of plants in the US have created a backlog of cattle. Lockdown restrictions have seen demand for beef ease significantly from the food service sector.

Despite the tight supply situation and improved seasonal outlook, the Australian cattle market can’t sit in its own isolation for long. The extreme selloff in US prices will create headwinds for Australian prices if the US market cannot rebound in the next few months.

Figure 2 highlights the annual price correlation between US Live cattle futures prices and the National Heavy Steer. Drought in Australia can cause the normal discount that exists between US and Aussie prices to widen, as it did in 2013-15 when we traded well below the line of best fit (dotted line on Figure 2). Similarly, wetter periods or tight domestic supply can see the discount narrow to par (like now) or even head into a premium, like in 2016-17.

However, over the longer-term cattle prices in Australia will revert towards the normal relationship to the US and gravitate back towards the line of best fit. The longer US Live cattle futures remain under 200US¢/kg the more likely the local price of Heavy Steers is going to ease. The most likely path in a scenario of continued weak US prices is to see the 2020-point drift to the left as outlined by the orange arrow in Figure 2.

What does it mean/next week?’

This means that if US prices stay depressed, we could see the National Heavy Steer move towards 175US¢/kg lwt (around 275AU¢/kg based on an Aussie dollar of 63.5US¢). Last month I presented on restocker markets for a Holmes & Sackett/MLA webinar where we released a grass-fed cattle trade matrix showing the theoretical payoff based on a 350kg purchase and a 550kg sale weight – Figure 3.

COVID-19 hadn’t impacted US beef prices fully at that stage and the A$ was being sold off aggressively which was insulating us from the weaker US cattle price moves. This meant that the annual average Heavy Steer forecast for 2021 was still sitting comfortably in the 325-350¢/kg lwt range and restockers could pay in excess of 420¢ lwt for cattle and still make a comfortable margin according to the matrix.

However,  the A$ has now rebounded and if US prices stay sub 200US¢/kg for an extended period this could see the forecast for Australian Heavy Steers in 2021 move closer to the 275¢ region which means that the margins restocker were hoping for could evaporate quickly – to the keen restockers out there… easy tiger!

 

Apparel slowdown weighs on wool market

Posted on by Caitlin Dearden

It is now becoming clearer how the COVID-19 virus is impacting on the wool market. Bale clearance at auction is down with mills either not operating or at reduced capacity, finance of the wool pipeline more difficult, and retail demand uncertain or in lockdown impacting on garment orders.

There is an air of determination from the market, but an underlying nervousness pervades.

The market continued to contract this week with the Eastern Market Indicator (EMI) losing 20 cents for the week to close at 1,272 cents. The Australian dollar was weaker easing 1 cent to US$0.631, which pulled the EMI in US$ terms down 26 cents to 802 cents. The Western Market Indicator also came back 12 cents to close at 1,358 cents.

Turnover this week was $28.76 million at $1,357 per bale, taking the year to date value to $1,756 million.

The pass-in rate was lower at 15.2% nationally with 21,187 bales cleared to the trade. 17.5% of the original offering was withdrawn prior to sale easing the pressure on the market. Of note Sydney offered 4,696 bales selling just 4,067. This was the lowest Sydney offering since AWEX records began in1997/98 season. Season to date there have been on average 6,340 bales fewer sold per selling week compared to last season.

Coming in to the CV-19 crisis, retail sales of clothing in the major wool consuming countries were mixed.  As reported by NCWSBA, China consumption was the first to fall, down a massive 33% in January compared to year earlier figures. Apparelware is experiencing a worrying slowdown, with both online and offline sales for businesses the world over taking a major hit.

As consumers hold back on their spending, clothing brands of all shapes and sizes are forced to scale back production, and reimagine how they position themselves.

AWEX reported all Merino types were cheaper with the exception of the finest MPG’s and wool of better style and measurement which posted modest gains. The bulk of the Crossbred types were cheaper as were Cardings.

The week ahead

Next week a national total of 25,554 bales will be offered with Fremantle & Melbourne selling on Tuesday & Wednesday, while just 5,406 bales will be offered in Sydney on Wednesday only.