Tag: Analysis

Cattle prices worse than last year, but who’s complaining?

Posted on by Caitlin Dearden

It hasn’t happened to the Eastern Young Cattle Indicator (EYCI) yet, but we have a few slaughter categories which have moved below year ago levels. It’s been a while since producers were getting less money than the year before, in fact it’s been three years, but is anyone complaining?

It’s been nearly two months of cattle prices tracking sideways, as just as the market seemed to avoid the usual autumn decline, the winter rally is taking it’s time to appear.

Figure 1 shows the Victorian Heavy Steer Indicator, which is a pretty good proxy for slaughter cattle on the east coast. Since 2015 there hasn’t been a week when the Vic Heavy Steer was lower than the previous year. In fact, we had to go back to February and March 2014 to find a time when the Vic heavy steer was lower than the year earlier. At that time the Indictor was at 310-320¢/kg cwt, just 5-10¢ below 2013 values. This week’s price was 557¢/kg cwt.

So is anyone complaining about prices? We can see from figure 1 that producers with heavy steer might be disappointed they didn’t sell a month ago, with the Vic Heavy Steer down 30¢ in that time. This equates to around $105/hd on a 350kg cwt steer, which hurts a bit.

In terms of the trade, if these steers were bought back 18 months ago, the EYCI was 600¢/kg cwt. Convert to live weight and add a bit of basis, and they might have cost around $1,000/hd at 300kg lwt. Selling this week as heavy steers they would have returned $1,950/hd. We’re not sure anyone is complaining about a $950/hd gross margin.

the week ahead

Seasonality suggests cattle prices are due to rally, and Matt’s analysis earlier this week on processor margins suggests there is room for slaughter cattle to begin their winter appreciation. Young cattle prices remain strong, as restocker and feeder demand is still robust enough (figure 2). We might see slaughter cattle rise without young cattle for a start. Although the very dry weather outlook for the next 8 days suggests we might be waiting a bit longer yet.

Buyers take a breather

Posted on by Caitlin Dearden

A reduction in lamb yarding this week along the East coast was met with broadly softer saleyard prices suggesting that buyers took a bit of a spell. The Eastern States Trade Lamb Indicator off a fraction, down 4¢ (or 0.6% lower) to 666¢/kg cwt. National Mutton a little softer, with sheep throughput holding firm, to see a fall of 11¢ (a 2.1% decline) to close at 511¢.

East coast lamb throughput dropping 15.9% on the week to register just over 157,000 head at the saleyard. Although yarding levels remain above levels recorded at this time last season and well clear of the five-year average so with that in mind prices remain at fairly good levels – figure 1.

Marginally softer moves for mutton in SA, Victoria and NSW as both sheep throughput and slaughter along the East coast trekked sideways – figure 2. In contrast WA mutton dragging down the national figures with a 10.2% fall to close at 441¢/kg cwt. Interestingly, Victorian lamb slaughter remaining persistently high for this time in the season (figure 3) suggesting Southern processors are getting their fill despite the relatively high prices.

The week ahead

A fairly dry forecast for the week ahead will limit price moves to the topside, while the looming winter tightening in supply and firm export demand should keep prices supported on any dips. The most likely scenario in the coming week is for continued price consolidation at these levels.

 

 

 

China wades back in despite higher A$

Posted on by Caitlin Dearden

Increased demand this week from exporters noted as Chinese buyers resume their activity, undeterred in the face of a higher A$. The EMI creeping back above 1500¢, up 28¢ to 1506¢ and gaining 31US¢ to 1146US¢. The Western markets resumed auctions this week and activity participated in the rally, making up for lost time with a 63¢ rise to see the WMI at 1567¢, up 58¢ in US terms to 1192US¢.

Price gains for most categories of wool noted, although the medium fibres leading the charge higher with gains of 50-65¢ noted for microns between 20 to 23 mpg in the East and 90-110¢ gains for similar wool in the West. The rally in finer wool limited to a 15-50¢ range in all three centres.

Interestingly, the medium fibres displaying a more robust price movement this time around with the 21 micron reaching levels in AUD terms not seen since the middle 1988. Indeed, in May 2016 when the 21-micron hit 1535¢ in the South the 17 mpg was trading above $23 and the 19 mpg was above $19.5. This week with 21 mpg at 1549¢ the 17-micron unable to climb above $22 and 19-micron can’t crack the $19 level.

Some whispers around the traps that if the Chinese step away again the fine end could be in for a quick correction. Although, the prospect of higher US interest rates later this year could continue to play into wool grower’s favour. This week the US Federal Reserve lifted rates and because this was highly anticipated it had limited impact on the A$. However, any sign that the US will move to a more tightening bias or indications of more frequent potential future rate rises in the US could see the A$ come under reasonable pressure again, pushing it back toward the 70US¢ level. A relatively softer A$ now compared to back in 2011/12 helping to keep wool prices competitive overseas, despite the high local prices – figure 3.

The week ahead

Next week on the Eastern centres have sales are scheduled, with Fremantle taking another recess, to see 24,376 bales on offer – figure 2. Clearly, supply in the favour of the growers at the moment and will continue to support prices in the short term. The key on whether the prices surge or consolidate will be how aggressive the demand is from Chinese buyers.

Cattle remains in a holding pattern

Posted on by Caitlin Dearden

National saleyard indicators tracked sideways this week, with most posting percentage price movements with less than a 2% variance, as slaughter and throughput figures along the East coast remain largely unchanged.

The Eastern Young Cattle Indicator (EYCI) just 1.8% softer to close at 643.25¢/kg cwt. It’s Western cousin a touch heavier with a 2.3% fall to 635¢, while the key beef export benchmark 90CL frozen cow managed a slight 0.9% gain to 652¢/kg CIF – figure 1.

The heavy 123¢ slide in Queensland Trade Steers noted last week was reversed somewhat this week with a 91¢ lift and as suggested in our previous cattle market comment the price volatility in the QLD Trade Steer numbers the result of low throughput levels – figure 2. QLD Trade Steers the only noticeable mover this week with most other state based indicators in a consolidation phase.

The sideways price action demonstrated by most cattle categories somewhat unsurprising given the broadly unchanged weekly slaughter and yardings numbers. East coast slaughter for the week ending 2nd June only 83 lower than the prior period and just shy of 136,000 head. East coast yarding posting a 1.8% gain on the week to see 54,940 head change hands – figure 3.

The week ahead

The eight-day forecast from the Bureau of Meteorology shows a fairly dry outlook for much of the nation with only slight falls, of less than 15mm, to NSW noted. This would suggest a bit more of the same for the coming week with price consolidation the order of the day.

The cost of transacting wool

Posted on by Caitlin Dearden

Australian Wool Innovation has stated it will progress with its Wool Exchange Portal (WEP) beyond the scoping stage and is now moving to the “discovery stage” where the portal is built. Expected industry benefits are $38 million over the first 15 years. In this article Mecardo puts this expected benefit into perspective.

In March 2016 Mecardo looked at supply chain costs for wool, grains and meat. The transport/marketing and logistics cost were 5.5-7% of the commodity value for meat (beef and lamb) and wool. The cost of selling wool was on par with the red meats.

What are the detailed costs incurred when selling wool? Figures 1 and 2 are drawn from the 2009-10 Sheeps Back to Mill analysis. Figure 1 shows the direct costs to growers for getting wool off the sheep back (shearing) to sale. The total cost (as of 2009-10) was $390 per farm bale with 72% of the cost coming from shearing. The balance of the costs is split between transport to store and various selling functions plus industry levies.

Costs incurred by growers after the wool has been delivered to store (excluding shearing and delivery to store costs) were $72 per farm bale in 2009-10. Figure 2 shows a breakup of the costs associated with purchasing wool (direct costs to mill) in Australia which totalled $75 per farm bale in 2009-10. In total it cost $175 per farm bale to sell wool in 2009-10, through a system with no counterparty risk.

Figure 3 combines all the costs after stripping out the shearing and delivery to store cost. This is a breakup of the $175 per bale cost of selling wool in 2009-10. The combination of broker and post-sale charges (PSCG and PSCM) accounts for about half of the cost, which was about $82 per farm bale in 2009-10.

In Australia in 2017, around 1.5 to 1.6 million farm bales will be sold annually through the auction system. In May the average gross value per bale was $1670. For the past three years the average gross value per bale sold has been $1411.

Now, back to the expected industry benefits from the WEP of $38 million over 15 years. This equates to $2.53 million industry benefits per year, which when expressed as a dollar per farm bale number is $1.63 per bale (assuming 1.55 million bales sold annually). This is about 1% of the selling costs (from wool store to mill) identified in 2009-10. In terms of wool value it represents 0.1% of the average bale value of wool sold during the past three years. Either way the projected industry benefit is small beer.

Key points:

  • AWI commits to building a Web Exchange Portal (WEP).
  • Projected industry benefits are $38 million over 15 year.
  • This works back to $1.63 per farm bale per year.
  • The projected benefits account for 1% of post farm selling costs.

What does this mean?

While the wool selling system carries some risk if a wool broker goes broke, it carries no counterparty risk as wool is only shipped from store after payment has been received. Not many commodity selling systems can boast of such a robust system. The proposed industry benefits from the WEP account for 1% of post farm selling costs or 0.1% of the value of farm bales sold during the past three years. These projected benefits are very small. Are there no bigger problems with greater pay offs for the wool industry to tackle?

ESTLI steady but a new record in the west

Posted on by Caitlin Dearden

While the Eastern States Trade Lamb Indicator (ESTLI) was steady for the week, there were still new records set this week.  In the West trade lambs jumped to a new record, while Merino lambs in Victoria are knocking on the door of $7.

WA doesn’t have the most expensive lambs in the country, but with the Western Australian Trade Lamb Indicator (WATLI) hit a new record this week.  The WATLI gained 17¢, to hit 681¢/kg cwt (figure 1), stronger than the ESTLI (670¢) but weaker than Victorian Trade Lambs, which sit at 695¢/kg cwt.

Victorian light lambs remain the most expensive, at 700¢, but actually lost 20¢ this week.  It was Victorian Merino lambs which streaked ahead, gaining 47¢ beat any previous Merino lamb record by miles, to sit at 686¢/kg cwt. NSW (649¢) and SA (562¢) also had lifts in Merino lamb prices, but WA saw a fall. The National Indicator posted a new record of 638¢/kg cwt (figure 2), well above last year’s peak.

After a run higher mutton prices steadied on a national scale, finishing 5¢ lower at 522¢/kg cwt.  Mutton pricing was all over the place in state indicators however.  Victorian Mutton fell 22¢, but SA gained 37¢ and WA was up 38¢.

It’s interesting to see lamb slaughter remaining relatively steady over the last five weeks (figure 3), at levels similar to last year.  As we said a couple of weeks ago, the same supply, and prices 12% higher, suggest demand has strengthened.

The week ahead

With the forward contracts bandied around this week, there looks to be little reason to expect lamb prices to fall anytime soon.  Whether prices can move consistently above 700¢ is the question, but if supplies step down like they normally do at this time of year we could.  However, looming processor seasonal shutdowns could limit demand and see prices track sideways.

A$ and wool market head in different directions

Posted on by Caitlin Dearden

Normal market drivers and influences were turned on their head this week. On Wednesday, the A$ fell and so did the market, while on Thursday the market rallied with the A$ ending the week up by almost US$0.015 cents.

This caused the EMI to lift across the week by 6 cents while in US$ terms it was higher by 27 cents.

With only Sydney & Melbourne selling, the clearance to the trade of just under 22,000 bales was easily the lowest for the season (Fig 2).

To compare with the same period last year, wool sales; more specifically “clearance to the trade”, are on average 4,000 bales per week lower.

Main interest is in wool with less than 5.0% VM, and as reported in Andrew Woods article VM Supply & Discounts, 2006, 2011/12 and this year has seen volume of high VM wool rise above the usual levels for this time of the year. It makes filling orders of low VM wool more difficult with overall volume lower, high VM content as a result of the good season, and growers prepared to pass in wool if the price eases.

It appears that demand is pushing back on the price levels, with buyers prepared to allow 9.1% to be passed in, however the rapidly reducing number of bales arriving in broker stores has exporters on edge. If a mill needs stock or the particular type of wool that is required is in short supply then prices quickly rally. It’s a volatile situation.

The opportunity for wool growers is to apply a strategic approach to sales; that is use the wool broker to identify types that are selling well as well as types that are over supplied or lacking demand; and then sell or hold back as your situation allows. The recent market activity shows that a weak market one week is quickly replaced by a rally. It is also a time to have any unsold wool listed on Wool Trade where buyers can access if required.

The week ahead

Western Australia is back selling next week; however less than 31,000 bales are listed at the combined selling centres before dropping back to sub 25,000 the following week.

We can’t discount the effect of currency based on this week’s lead completely, so the effect of world events and elections could still see the A$ move; our view is that this is more likely to be down so generally positive for export markets.

The rain in Spain doesn’t stay mainly on the plains

Posted on by Caitlin Dearden

In our grain article yesterday, we picked out a few bullish factors at play in the market. Our view is that based on current market factors that pricing is close to the floor. In this weekly comment, we look at current pricing and the situation in Spain.

This week was a short week with the American markets closed due to the Memorial Day public holiday. The futures market closed red three days this week, with a gradual slide down 8¢/bu (Fig 1) from last Friday. Interestingly, in the past week we have seen a strong rise in basis (Fig 2). This week, we finally see Port Lincoln achieving positive basis since early December. A welcome sign, for farmers on the EP who are struggling with poor season starting conditions.

In the past week, we have also seen the Baltic Dry Index (BDI) fall below the 200-day moving average (Fig 3). The BDI is considered a leading economic indicator as the cargoes typically transported by bulk vessels are commodities requiring further processing (iron ore, coal, grains etc) to create an end product, thereby giving an insight into future economic performance. The poor economic data in China, and declining Iron Ore returns could place further pressure on the A$.

If you have seen My Fairy Lady, you may recall that “the rain in Spain stays mainly in the plain”, well not this year.  Forecasts this week are predicting barley yields falling by 15%, and wheat by 15%. This will result in an increase in imports. In figure 4, we can see that the north of Spain is most heavily impacted, which is where the majority of the crop is grown. Although Spain is most heavily impacted, we are also seeing worrying dry patches appear in other areas of Europe, namely in eastern France & west Germany.

Next Week

The US non-farm payroll is released tomorrow, which could have an impact on the continued strength of the USD.

The main focus continues to be on the heavens. We are well into the weather market, and issues arising overseas and unfortunately locally will impact on pricing. There may prove to be pricing spikes in the coming weeks which will prove good selling opportunities especially for old crop grain.

Bullish fundamentals can’t stop trade steer slide in Qld

Posted on by Caitlin Dearden

The fundamental international market news was bullish this week, but markets seemed to focus more on local issues.  Broader indicators managed hold their ground, or even rally a bit, but at the state level there were some heavy price declines.

After a brief decline last week, the 90CL export price rebounded this week as tight supply, and expected tighter imported beef drove US buyers to bid up.  While not quite back to the highs of a fortnight ago, the 90CL rallied 8¢ to 645¢/kg swt.

The other bullish fundamental news was the Indian ban on cattle slaughter, which will obviously take some time to play out.  However, there might have been a reaction of sorts from restockers, who were seemingly the only buying group who paid more.

Restockers pushed the EYCI higher, as shown in figure 1, it gained 4¢ for the week to hit 655.25¢ a five week high.  Cows also rallied, while heavy steers fell.

The interesting numbers came out of the trade steer market.  Figure 2 shows dramatic falls in Queensland and Victorian trade steer indicators, while NSW held steady.  We don’t yet have the yardings for the indicators, but the heavy falls would suggest there weren’t many trade steers sold this week.  This is partially backed up by just a 15¢ fall in the national indicator.  Much less than the 123¢ and 44¢ falls in Queensland and Victoria.

In WA the Western Young Cattle Indicator (WYCI) gained a couple of cents to sit at 650¢/kg cwt.  Figure 3 shows an interesting convergence.  The EYCI, WYCI and 90CL indicator all sitting between 645 and 655¢.  The last time we saw this was in March 2016.

The week ahead

There is no rain on the forecast for the coming week, which is not great for any market upside.  However, we are now in June, and it’s very rare for the market to fall to far at this time of year, as supply tightens.  As such we might spend a few weeks in a holding pattern, at least until it rains, when we might see a rally.

Where are all these Merinos?

Posted on by Caitlin Dearden

Recently we published an article reviewing the trends in ewe numbers and breeds.  An interesting stat in the article was that Merinos still make up 69% of the national ewe flock.  A common question after the article was ‘where are all these Merinos?  We delve deeper into the data to find out.

Living in Western Victoria, which is one of the hotspots for the swing to meat breeds, it’s hard to imagine that 69% of the ewe flock is made up of Merinos.  Figure 1 in part explains this, with 61% of the nation’s Merinos being in NSW and WA.  Just 15% of Australia’s Merino Ewes are now in Victoria.

The numbers of Merino ewes in NSW has remained relatively steady since the start of 2012, falling 6% compared to the national fall of 13% (figure 2).  The big movers have been South Australia, where Merino numbers have fallen 18% in five years, and Queensland, which has lost 49%, just under 1 million head to 1.35 million head.

Figure 2 also shows every state except WA has increased their number of ‘other’ breeds since 2012.  On a national scale, the decline in Merinos hasn’t been matched by increases in other ewes.  However, in NSW and Victoria Merinos have been displaced by other ewes.  In WA, SA and Queensland total sheep numbers have fallen.

Figure 3 shows how the proportion of Merino ewes has changed in each state over the past five years.  Victoria has had the lowest proportion of Merino ewes, apart from Tasmania, for the past five years, with much of the decline happening in the last two years.  With just 52% of sheep in Victoria being Merinos, having fallen from 60% two years ago, it’s little wonder those in the south are wondering where the Merinos are.

Perhaps it is due to climatic conditions, or it might be due to the fact that Merino’s are bigger and more suited to lamb production in WA, but the West remains a stronghold of the Merino.  The proportion of Merino’s in the west hasn’t really changed over the last five years, fluctuating between 86 and 92% and currently sitting at 87%.

Key points:

  • Most of Australia’s Merino ewes are currently in NSW and WA, although numbers have declined in all states.
  • Other breed have replaced Merinos in NSW and Victoria, but total ewe numbers are down in WA and SA.
  • The decline in Merino’s is in part being borne out in higher wool and merino sheep prices.

What does this mean?

Where are all the Merinos?  In NSW and WA, and to a lesser extent SA.  There remain some in Victoria but the trend towards meat breeds continues, albeit at a slower pace than anecdotal evidence would suggest. Lower merino ewe numbers are obviously contributing to current strong wool prices, along with merino lambs and sheep, which are currently sought after, and priced well relative prime lambs.