Tag: Analysis

And the wool market marches on.

Posted on by Caitlin Dearden

The wool market set another record this week, it is looking settled at these previously un-attained price levels. Probably another record was set when wool producers in the Sydney catalogue sold 99.9% of bales offered in the first day. Growers are enjoying this market!

After last week clearing 40,000 bales, this week only 35556 bales were cleared to the trade, from a total offering of 36398 bales. The impact on the market was significant, with the Eastern Market Indicator (EMI) lifting by 21 cents on the first selling day and a further 31 cents on Thursday to see it close for the week at 1943 cents, while in US$ terms the EMI found an additional 49 cents to settle at 1462 cents (Figure 1).

The AU$ was slightly stronger to settle at $0.75, while the Western Market Indicator (WMI) gained 62-cents to 2080 cents.

Many of the MPG’s only started in 2011, so comparisons of the market are often made from this date. Currently, all indicators 28MPG and finer are at their record high levels since 2011. This is a remark able market.

Merino skirtings posted improved levels each day and closed the week on a very solid note.

Merino Cardings had another good week, all centres showing stronger prices with an average lift of 22 cents.

The week ahead

Next week fewer than 32,000 bales are offered, a decrease on this week’s sales.

The large clearance in the first week after Easter provided an insight into the current demand and this has certainly carried through in subsequent weeks. It must be keeping exporters awake, will the make continue to rise, consolidate at current levels or retreat after consecutive increases.

Southern rain provides limited relief

Posted on by Caitlin Dearden

The beginnings of the Autumn break in the South has placed a floor under cattle prices during the last week with the Eastern Young Cattle Indicator (EYCI) gaining 1.3% to sit just below 490.5¢/kg cwt. Victoria has received some good rain in recent days but the benefit of this change in weather has not been able to extend further North into NSW.

Across the national sale yards most categories of cattle have gained value. The National Trade Steer indicator increased 3% to see it sitting at 284¢/kg live weight, although outclassed by Medium Cows that managed a 5% rally on the week to 357¢/kg live weight. National Heavy Steers one of the few classes of cattle to soften this week albeit marginally, staging a drop of 1% to 267¢/kg live weight.

East coast cattle yardings are 20% softer week on week, reflective of the improved conditions in the South – Figure 2. NLRS report East coast cattle yarding levels of 54,360 head which now sit comfortably within the normal seasonal range for this time in the year and is only 3.6% above the five-year seasonal average.

However, NSW is yet to benefit from the recent rains in any meaningful manner and cattle prices will struggle to gain significant traction while it remains dry here and NSW cattle yardings remain elevated. Figure 3 outlines the recent pattern in NSW cattle yarding with current throughput levels 40% higher than the five-year seasonal average and 37% above the level set this time last season.

What does it mean/next week?

The rainfall forecast for the next week shows light falls are set to continue in Victoria and along the Eastern seaboard of Northern Queensland. Unfortunately, the rest of the country (and sadly NSW) miss out again.

It’s difficult to see a decent mid-Autumn rally in cattle prices beginning while it remains so dry in much of the country. Further sideways price consolidation is anticipated for the week ahead, despite improving beef export prices offshore.

Basis on the rise

Posted on by Caitlin Dearden

The weather continues to be the biggest driver of the market both globally and now increasingly at a local level. The Australian crop is currently on the precipice, with a huge degree of risk currently being priced in. In this weekly comment, I take a look at the weather forecast and basis levels.

Figure 1 displays the December wheat futures contract since the start of the year. This contract aligns with the Australian harvest and is typically the most appropriate for hedging purposes (for producers). As we can see much of the gains of early May have been lost. At it’s highest point in May the December contract was at A$279/mt, although in recent days the market has gained some traction, the current level of A$261/mt is not an insubstantial fall. The market however is prone to volatile behavior at this point of the year, and large market swings can potentially occur.

Our biggest concern for both grain producers and consumers in Australia, are the local conditions. The BOM released their rainfall forecasts for June to August (see map). This map details the change of above median rainfall. Our concerns are growing for the majority of the wheatbelt, but especially NSW and WA. Our hope is that the forecasts are wrong, and that a deluge is imminent.

Let’s take a look at basis levels (Aussie premium or discount over CBOT). As we all know, our basis level will increase when weather conditions deteriorate. In figure 2, the spot (old crop) basis is show, as we can see the basis level has increased dramatically in the past week. This is as a result of both the weather premium, and demand for the shrinking stockpile of old crop, especially in northern feed demand areas.

In figure 3, the new crop APW1 MG basis is displayed. The basis level has increased to it’s highest point this season. Although there is still a long way to go before harvest, if weather conditions remain dire, then this basis level will increase. This will provide minimum solace, as high prices and poor yield is a poor outcome for everyone.

If you are interested, I was asked to give a summary of the market to the Sky News Ag Show. The video is on the link below. However, please note I am not a seasoned TV personality!

https://www.weeklytimesnow.com.au/agribusiness/the-ag-show/the-ag-show-featuring-auctionsplus-chief-executive-anna-speer/news-story/6c3256aef5e4a96b32a6b6ecb1709280

What does it mean/next week?:

Let’s just keep an eye on the weather. Although cash prices are currently high, it is prudent to think strongly about physical risk, and washouts at present.

All systems go for the wool market

Posted on by Caitlin Dearden

The wool market bounced out of the blocks this week, from outset the buyers were forced to compete vigorously to secure any volume. A weaker Au$ assisted but there was no denying the urgency of the buyers as they bid up.

The Fremantle market got a mention last week, and the positive sentiment it left on the previous weeks market certainly carried through to the open of this week.

With a smaller offering compared to last week of 42,794 bales, the Eastern Market Indicator (EMI) gained 55 cents to 1891 cents, while in US$ terms the EMI was up 33 cents over the week to settle at 1414 cents (Figure 1). In the Fremantle sales, the Western Market Indicator (WMI) rallied 45 cents on the opening day and a further 21 cents on Thursday to end the week at 2018 cents. This easily surpassed the previous record of 1965 cents.

The AU$ was softer, trading around the US$0.748 mark, slipping below the US$0.75 cent support mark.

In line with the stronger market in general, the pass in rate fell to 2.3%. Growers and brokers stepped up and delivered to a strong market resulting in 37,842 bales eventually sold, with only 886 bales passed-in.

Crossbreds also posted gains although more restrained than the rest of the market, while the cardings also felt the increase in the general market and lifted.

Skirtings were reported extreme for selected lots, with reports of 40 to 50 rises at the open which carried through the week.

With just over 36,956 bales sold this week, (season’s average 41,541) we expect supply will continue to be front and centre in buyer’s minds. There are 37,496 bales rostered for next week, however the roster falls to an average of 34,793 bales for the following weeks.

The week ahead

The demand looks solid, supply is tight and getting tighter and the currency looks like it wants to help also. This all points to a positive short-term outlook for wool.

We can only repeat last week’s outlook, this is a good time to be selling wool and it looks like the market still wants to improve.

Good export prices and a little rain not enough.

Posted on by Caitlin Dearden

With the Beef Australia conference on in Rockhampton it looks like buyers pulled up stumps for the week and went north. This was evidenced by further declines across most cattle categories, despite some support coming from export markets.

The Eastern Young Cattle Indicator (EYCI) continued its downward trajectory, posting a 13.5¢ or 2% fall to plumb new three year lows of 484.75¢/kg cwt. Our resident technical charting expert is networking in Rocky, no doubt enjoying the weather while the base in Ballarat freezes, but even to this untrained eye there are some interesting trends.

Figure 1 shows the EYCI approaching its five year average, currently sitting at a 23¢ premium. We would think the five year average should offer somewhat of a support level. Figure 2 shows the classic ‘head and shoulders’ charting pattern. We’ve just broken thorough the right shoulder, and look to be headed down the arm.

The five year average is about the elbow, let’s hope it stops there and doesn’t head down to the knees where we were back in 2014.

There was some positive news about. Figure 3 shows the 90CL export price chart we published earlier in the week, with a solid tick upwards in US prices, and the AUD falling below 75US¢, pushing our price back to 590¢/kg swt.

Additionally, most of Victoria, and South East South Australia got some good rain over the last few days. It will be particularly important for parched parts of Gippsland. These areas only account for 4 million head, or 16% of the national herd, so it’s unlikely to move the market too far.

The week ahead

There is still no rain forecast for NSW, so it’s hard to see cattle markets heading higher in a hurry until there is some relief. Grain prices also continue to charge higher, with feed grains heading towards $280-300/t and this will obviously dampen demand from lotfeeders. A real rally in cattle markets is going to require rain, and there is probably still scope for it to head lower if it remains dry.

Directionless but still strong

Posted on by Caitlin Dearden

After an exciting two weeks previously in the grain market, we keep a largely directionless week. The market continues to keep a close eye on the weather around the world, with the wheat production in an increasingly fragile position.

Overnight the USDA released the may WASDE report. The may report is the first of the year to forecast the coming season. Although, with these initial estimates, it is probably worthwhile taking them with a pinch of salt. In figure 1, the global projections for wheat production and end stocks are displayed. These unsurprisingly show a decline in both, with production down year on year 10mmt, and end stocks 6mmt. This is slightly above most trade expectations, but there is still a long way to go.

One thing to keep an eye on is Russian wheat production, as we all know they have been one of the most important factor in global trade. The USDA forecast at 72mmt, a huge reduction from last years 85mmt.  Although this must be put in perspective, 17/18 was a record production year in Russia, and even with such a large fall, production is estimated at 3rd highest on record.

The futures market fell at the end of last week, but since has been largely directionless (figure 3). The market is remaining at substantially more attractive levels than it was at the beginning of April. The market and farmers are still watching and waiting on weather forecasts, which will determine the production for the coming year.

 

What does it mean/next week?:

The cold snap which has brought rain (and snow) to the east coast has largely been limited to VIC and east SA. The country is in dire need of rain, especially in NSW and Victoria.

From all account, it looks like farmers are reassessing their planting intentions, and canola will be the loser.

Rain, rain, don’t go away! Stay around for many days.

Posted on by Caitlin Dearden

The Autumn break has hit the south this week and the rainfall has provided both a lift to spirits and prices. Although, the price gains are somewhat marginal as pressure remains from strong supply of sheep and lamb stemming out of NSW.

The Eastern States Trade Lamb Indicator (ESTLI) closed yesterday 3¢ higher for the week to see it just shy of the six-dollarmark at 598¢/kg cwt. East coast mutton performing a little better with a 9¢ lift to 446¢/kg cwt. – Figure 1.

Weekly rainfall totals highlight that much of Victoria has benefited from the beginnings of the Autumn break, with some light falls extending into NSW – Figure 2. The arrival of the rains has certainly stemmed the decline of lamb and sheep prices in Victoria with sale yard NLRS reporting modest gains of up to 2% across nearly all categories. Victorian Restocker Lambs the exception, closing 4% softer to 573¢/kg cwt.

Unfortunately, not enough rain heading into NSW to halt the price softening. Curiously, sale yard prices in NSW displaying the exact opposite pattern to Victoria with all reported categories 2-4% softer except for NSW Restocker Lambs – which posted a 6% gain to close at 602¢/kg cwt.

In the West Trade Lambs virtually unchanged at 614¢/kg cwt and WA Mutton took a bit of a hit to see it 15% lower during the middle of the week to dip below 375¢/kg cwt. WA Mutton yardings rebounding this week from 4,000 to 17,000 head and sitting 13% above the average for this time in the year a likely factor in the softening prices there.

East coast lamb throughput continues to behave in a somewhat volatile manner, largely driven by NSW flows. East coast lamb yarding levels were up 70% week on week to see nearly 196,000 head change hands. This was spurred on by the rebound in NSW lamb yarding levels this week which posted a 63% lift to see over 140,000 head go through the sale yards – Figure 3.

What does it mean/next week?:

The rainfall forecast for the next week shows some great falls for the Gippsland region of Eastern Victoria but little else for the rest of the country. The rain in Victoria this week is probably enough to support sheep and lamb prices there but NSW will continue to struggle if they remain dry.

On balance its likely to see East coast prices consolidate this week as the improved Victorian situation will be offset by a softer bias elsewhere.

A big month in beef export… in a relative sense.

Posted on by Caitlin Dearden

We’ve been banging on about stronger cattle slaughter in response to dry weather for a while now.  The stronger slaughter has now translated into stronger exports, with April defying the usual trend and putting up some big numbers.

It should be somewhat comforting to cattle producers that the strong supply seems to be finding homes in export markets. Demand for Australian beef remains relatively robust. Figure 1 shows April beef exports were down a marginal 3% on March thanks to public holidays. Exports were however, 32% higher than April last year, and at a four year high for the month.

Japan was again the major market for our beef. Despite the slight month on month fall, exports to Japan were up 3% to their highest level since August last year, taking 31% of our beef.  Korean exports were down 11% on last month, so it would seem Japan are absorbing more high quality beef.

Chinese exports were up 10.5% on March, and a very strong 54% on April last year, hitting their highest level since November 2015 (figure 2). Chinese beef demand continues to grow, and it is slowly heading back towards the boom times of 2013 and 2015. China again went past Korea to become our third largest market, at least for April.

Exports to the US market were down 2.5% on March, but up 33% on April last year (figure 3). Stronger slaughter, and especially female slaughter, this year has increased the supply of manufacturing beef, our main export to the US. The stronger supply of beef, along with increased US slaughter, has seen the 90CL fall 7% in US terms, and 10% in AUD terms.

What does it mean/next week?:

It will be interesting to see if beef exports show the usual bounce in May, which would see them rise around 16%. The way the season and slaughter is tracking it wouldn’t surprise to see a solid increase in beef exports.

With beef still seemingly being sold into export markets at reasonable prices, there is hope that if the dry continues, the subsequent stronger supply might be soaked up at around current prices.  Obviously, if it rains tighter cattle supply will see competition for beef, and improved prices.

Key Points

  • Beef exports were down slightly on last month, but much stronger than April 2017.
  • Exports defied the usual downward trend in April thanks to stronger slaughter.
  • Exports to China hit a 3 year high as the upward demand trend continues.

More slaughter this year, but same later.

Posted on by Caitlin Dearden

Perhaps producers are responding to the rainfall scheduled for the coming week a little early, but the decline in cattle throughput at the sale yard over the last seven days have seen national cattle prices stabilize. The story is mixed across the states, though broadly speaking the market looks to have found a bit of a base.

Table 1 highlights the weekly price action for a selection of cattle categories across the Eastern seaboard with all but Medium Cow postinggains. The Eastern Young Cattle Indicator (EYCI), Trade and Feeder Steers are barely unchanged. Medium Steers the best performer, up 6.5% to 264.6¢/kg lwt.

In Queensland, sale yard prices were a little softer across the board with most types off 1-3%. Medium Steers were the laggard in the north, down 5% on the week to 246¢/kg lwt. NSW saw mixed action for its cattle categories, ranging from 5% gains to 5% losses. NSW Restocker Steers proved the best performer, with a 4.5% lift to 268¢/kg lwt and Trade Steers are dragging their feet a bit posting a 4.8% drop to 273¢/kg lwt. In Victoria, all categories bar Feeder Steers saw price rises between 1-8%. Victorian Feeder Steers had a 2% decline to close at 266¢/kg cwt and Heavy Steers put in a stellar effort to finish the week up 7.8% to 279¢/kg lwt.

East coast throughput figures provide a clue to the halt in price declines, with cattle yardings off 43% on the week to see throughput levels test below the normal range for this time in the year – Figure 2. Cattle yardings were just shy of 43,000 head and are now sitting 30% under the average seasonal level based off the last five years of data.

In the West, cattle yardings were also softer, with prices stabilizing to close at 560¢/kg cwt. Western young cattle prices are still enjoying a 13% premium to the EYCI, which finished the week at 496¢.  In offshore markets the 90CL frozen cow indicator trekked sideways to close at 573¢/kg CIF – Figure 3.

What does it mean/next week?’

For the first time in a good while there is 10-25mm of rainfall forecast for a swathe of the Eastern states. This is likely to see a lift in spirits and may also revive the interest of some Southern restockers if it looks to be the signal for the beginning of the Autumn break. Cattle prices should continue to consolidate in the coming week with a slight upward bias if the rains come as hoped.

Sheep not out there or growers holding strong.

Posted on by Caitlin Dearden

Lambs continue to flow to the market, keeping a lid on prices. However, mutton values have been on the rise and narrowing the gap, as despite the dry weather, the supply of sheep is either not there or being held tight.

Figure 1 shows that sheep slaughter remains well above last year’s levels, with the short week kill roughly equivalent to the full weeks this time last year. However, the usual autumn slaughter downtrend is in place as supplies remain similar to the five year average.

Lamb slaughter hasn’t been falling, it hit a peak in the week before Anzac day, and last week was 14% above the short weeks at Easter.

The result of lower sheep slaughter, and stronger lamb slaughter, is a narrowing gap between the pricesFigure 2 shows a mild upward trend for mutton since February, with the 10¢ gain this week pushing it to 437¢/kg cwt.

The Eastern States Trade Lamb Indicator (ESTLI) eased marginally this week, losing 5¢ but remaining above the lows hit a fortnight ago.

The mutton discount to the ESTLI has held above 40% for the last three weeks. Mutton isn’t as strong as the 20-30% spread seen this time last year, but given the season, the relative tight supply might tell a story.

Either there are not the sheep out there to sell in response to the dry weather, or growers are confident enough about prices, and profitability to feed sheep through the feed gap.

The week ahead

There is again a little bit of rain moving through Victoria. Enough to confirm a break in some areas where there are a lot of sheep, but likely not widespread enough to see sheep supply tighten dramatically. Lamb supply can’t really rise from here given the extraordinary levels we’ve seen, but prices could continue to track sideways for a little while yet before the winter premiums kick in.