The headline Eastern Young Cattle Indicator (EYCI) finished softer again this week, but not before staging a slight gain off the mid-week low of 513.50¢/kg cwt as saleyard throughput numbers decline in the face of the lower prices.
Figure 1 highlights the East coast yarding figures for the week, showing a 14.8% drop as throughput in Queensland, NSW and Victoria all come in lower as producers respond to softer pricing across most types of cattle in these regions. Queensland cattle prices showed fairly flat movement on the week, while NSW saw losses between the 1.5% to 3% range. Victorian prices were the heaviest, with falls between 3% to 5% on the week.
Meanwhile, East coast slaughter figures continue to trend broadly sideways, although the trend has remained above last season’s figures since early Winter – figure 2. As Angus, noted in his analysis piece this week the higher slaughter has now been weighing on prices, but this suggests price support will be evident later in the season – particularly if the MLA slaughter estimate is achieved come year end.
Figure 3 shows the price pattern for the EYCI, WYCI and 90CL. The volatility continues in the West for young cattle with a 9% drop to 536¢ while the EYCI finished the week at 515.75¢, a fall of 1.6%. In a promising sign, the 90CL beef export price back above 560¢ in six weeks with a close of 562.6¢/kg CIF noted.
The week ahead
The lift in the 90CL, lower throughput and the prospect of reasonable rain for the first time across most of NSW this week points to the chance of some support creeping into cattle prices for the near term. Particularly as the rain forecast includes some heavier falls expected in WA and the East of Victoria.
On Thursday, I will be presenting to the Crop Science Society of South Australia on the topic of GM crops, and the markets associated with them. I thought this was therefore an opportune time to look at the GM moratorium, and whether the promised premiums are available.
The South Australian government may point to a knock-on effect where other commodities are receiving a boost. In that case, we thought it was worthwhile checking how strong the premium for cattle and lamb had been due to being from a GM free state.
The South Australian ban on GM cultivation is providing little if no extra premium to prices of livestock and canola. There may be premiums in other sectors such as the seafood and wine industry, however this is of little comfort to canola producers.
The lamb market is throwing up some interesting data at the moment. Meat and Livestock Australia’s (MLA) weekly slaughter data is telling us lamb slaughter is at a record for this time of year, yet prices remain historically strong.
In 2014 rising lamb supplies saw prices fall heavily in August, and stay there until December. Apart from prices easing from extreme highs in June, we still haven’t really seen prices deteriorate in response to stronger supply.
In the last few years the 400,000 head mark has been the trigger point for heavy falls in prices. Lamb slaughter appears to be headed that way, but could just as easily track sideways for a month or so. Does this this mean prices will also track sideways? It’s hard to say, but demand appears to be very resilient.
In commodities, and particularly in agricultural commodities, a stable market is generally a good sign, especially if the market is at the top of its recent trading range. The wool market can best be described as “steady” this week, however, as usual there were some exceptions with the fine wool and crossbred selections in Melbourne underperforming the market.
A total of 40,699 bales were offered for sale this week. The steady market encouraged growers to more readily meet the market, with the pass-in rate of 6.9% well down from last week’s significant 15.5%. (Figure 3).
The market has been a bit “bouncy” up to this week, we wouldn’t predict either stable or unstable for next week, its “one of those times” in the wool market!
The Australian east coast crop is a tale of two continents, with the bulk of NSW and QLD in a poor state, and Victoria/ East SA developing. The market is well and truly capturing the status of the crop, and the domestic market is pricing accordingly. This creates an issue of premiums being available (half full), but being unable to take advantage of them (half empty).
If a grower in Port Kembla had taken out a swap during the height of the July rally, then their overall price today would be >$370, which shows the value in strategic marketing using derivatives.
In the next week will we see the speculators continue to view the market as bearish, or will we start to see additional profit taking?
A couple of weeks ago we wrote in this column that the Eastern Young Cattle Indicator (EYCI), and cattle prices in general, might have found a floor. Turns out we were wrong. Figure 1 shows the EYCI falling below the spring lows of 2015, and heading towards 500¢.
Over in WA the Western Young Cattle Indicator (WYCI) has also weakened, but only eased 6¢ to 589¢/kg cwt. Unlike the EYCI, which is sitting 26% below this time last year, the WYCI is just 4.7% lower, so things aren’t too bad for WA producers.
Grainfed cattle prices have fallen in line with the rest of the market, with the consistent decline putting pressure on lotfeeder margins. With pressure on lotfeeder margins comes lower feeder cattle prices, although, on a relative scale, they are performing ok.
The situation is a bit different now, compared to 2009-2011. Back then cattle on feed numbers were low, with cattle going through feedlots at break-even to keep the doors open. Currently there are plenty of cattle on feed, and we have seen over the past couple of years that weak margins don’t last long.
It’s not unusual to see tight feeder cattle supply causing low lotfeeder margins at this time of year. The question is what happen when supply improves in September and October. Under current grainfed cattle and grain prices, feeder prices will have to fall 20¢/kg lwt for lotfeeder margins to improve back to $100/head. Figure 2 shows that $100/head is more in line with recent history.
Mild price declines across the board noted for all categories of national saleyard lamb and sheep this week despite lower numbers at the saleyard. The headline Eastern States Trade Lamb Indicator (ESTLI) down 2.6% to close at 597¢/kg cwt, while National Mutton off just 1.2% to 400¢/kg as gains in NSW and Tasmanian mutton offset falls elsewhere. 
National saleyard lamb categories all softer this week with falls noted between 1-4%, Merino lamb leading the decline with a 3.8% drop to 539¢/kg cwt. National Trade and Heavy lambs the better performers, only down 1.8% (596¢) and 1.6% (601¢), respectively. The lower prices on the back of a reduced saleyard offering indicative of slightly weaker demand.
The Eastern Market Indicator dropped down 31 cents to 1,525 cents in A$ terms this week (Figure 1). The market in the west followed a similar path, falling 30 cents out to 1570 cents close (Figure 2). Our dollar is still holding up against the US$, which meant the EMI fared slightly better in US$ terms finishing 22 cents lower on the week at 1221 cents. The A$ traded at 80.5 early and pulled back as the week progressed which was reflected in the market as prices stabilised on the second day of auctions.
Merino skirtings and crossbred wools also felt a quick early blow in the market before stabilising on day 2. Recovery was slightly better than for Merinos, with losses of 15 to 30 cents for crossbreds and an average of 20 cents on skirtings. Cardings were the only category that managed a positive move by gaining just a few cents on the week.
The US were busy celebrating labor day on Monday, well at least those not bracing for (or recovering from) Hurricanes. The market had a strong recovery prior to the holiday, with short sellers taking profits after a continuous decline over the past month (figure 1), however over the past two sessions the market has lost around half of these gains. The market was not helped by the Food and Agriculture Organisation raising its expectations for the global cereals crop to 2.6bmt, which would be the highest on record.
In figure 3, the basis levels as a percentage of the overall price are plotted. As we can see, there have been considerable rises in all zones. The rise was far more sedate in Kwinana, which has for the past 8 weeks maintained at strong levels, and the bulk of issues in the WA crop have been priced in. The basis levels as a percentage of the price in Kwinana and Port Kembla are now at historically high levels.
The key will be the USDA report, will there be any surprises? The recent upgrades to the Russian crop will likely give a bearish edge to the report.