Normally World Agricultural Supply and Demand (WASDE) reports released early in the year are relatively benign. The old crop is largely known, with only minor changes in exports to move the market. Not this month however, with wheat getting a boost thanks to some surprises.
World wheat production was cut by 4.4mmt this month, largely thanks to a downgrade in India. The United States Department of Agriculture (USDA) are still saying 2016-17 will be the biggest crop on record. However, a small increase in consumption (Table 1) and a decrease in ending stocks saw the stocks to use ratio decline from 34.2% to 33.5%. Sounds small, but as shown in figure 2, the stock to use for 16/17 is now smaller than last year.
In theory, a smaller stocks to use ratio should mean higher prices than last year. This had funds jumping out of wheat last night, pushing the CBOT spot contract to a 7 month high of 442¢/bu (figure 3). Still a long way from the 500¢ of February 2016.
In our terms the stronger AUD sees prices just below the 7 month highs hit in January, with the spot contract at $213/t, up $5 for the week, and Dec-17 at $238/t, shown by the red line on figure 3. There is full carry into Dec-17, and those concerned about prices ticking along at current levels for another year might be tempted to sell a bit at these levels.
Soybeans took a bit of a hit on an upgrade in US stocks, but oilseeds in general were stronger. ICE Canola has moved back to its recent high of $CA527/t which in our terms is exactly the same, thanks to the currencies being at parity.
The week ahead
Old crop wheat has found a little bit of strength in the last week as a stronger CBOT, and buying for export shipments has added $5-10 to APW and ASW prices. The latest jump in CBOT might add another few dollars today.
The latest WASDE shows we are entering a traditionally volatile period for grain prices on international markets, and there might be opportunities to take some derivative cover for next year, or even on physical sales to be made later in 2017.
Surging weekly Queensland throughput and above average NSW throughput weighed on cattle prices in these regions dragging down the east coast figures this week with the Eastern Young Cattle Indicator (EYCI) dropping to levels not seen since the start of the season.
NSW experiencing price declines in all NLRS saleyard categories, apart from Medium and Heavy Steers, with Trade Steers headlining with the biggest percentage decrease, down 6% to 332¢/kg lwt with elevated NSW throughput appearing to contributing to the price pressure – figure 2.
Register 
Often at Mecardo we look at local and global cattle price relationships in US$ terms as the US cattle market is one of the key drivers of Australian cattle prices over the longer term. However, in this analysis we flip the magnifying glass to take a look at global prices in our terms.
Taking a look at the correlation between US Feeder Steers and the EYCI we can see a moderately strong relationship between the two series when looking at annual average prices expressed in A$ terms – figure 3. Although, 
The lift in US prices since October has taken some of the downward pressure off local prices. Although from a longer term historical perspective local prices remain in overvalued territory and have not been helped by a stronger A$ during January.
The very high prices seen last week had the desired effect for processors, drawing out very large lamb numbers, and sending prices lower. Sheep are a bit of a different story, especially in Victoria, where yardings waned, and as such prices have largely held their ground.
The fall was strongest in Victoria, where trade lambs lost 45¢, or 7%, and moved back into line with NSW and SA.
In WA lamb prices continued to play catch up to the east coast, with the WA Trade Lamb Indicator (WATLI) hitting a 19 month high of 548¢/kg cwt (figure 3).
The good news for the wool market continued; again, it was the fine wool that was the stand-out and led the market. Sydney had a designated fine wool sale; this came at the perfect time for NSW fine wool growers resulting in the Merino fleece and skirtings component having an almost total clearance with only 1.6% Passed In, compared to the national PI rate of 6.7%. The EMI was up A$0.15, while in US$ terms it was 9 cents better.
The last time 18MPG basis was at this level was July 2011 (Fig 2). Of further note is that in July 2016 (last year) it was quoted in Melbourne at 52 cents. Is that a 900% increase in less than 12 months?
ements suggest this will again be the case, so what does this mean for pricing over the coming months.
More interesting is what happens from there with the southern spread to the EYCI. Over February, March and April, the southern discount becomes a premium, as the supply of grass finished cattle tightens, as grass supply wanes.
It young cattle destined for slaughter, or trade steers and heifers, which are set to benefit the most over the coming months. Figure 3 shows that young cattle sold to processors improve 8% over the late summer and autumn. From the current level of 595¢/kg cwt, a narrowing of the discount to parity, would see the price reach 630-640¢/kg cwt. Prices haven’t been this good since October.
The response from three wool brokers this week when asked about the wool market was unanimous – it’s extremely good if you have wool 19 micron and finer, its good if you are in the “bread and butter” 20 to 22 micron range, and it’s terrible if you have crossbred types. This reinforces the concept that the wool market is not homogenous, it’s made up of a variety different markets.
Fine wool has finally come out of the shadows and remerged to show good premiums over the mainstream types, the concern with the trade now is that this incentive for fine wool producers to continue with this specialty product has come too late for some. The fine wool premium as shown in Fig 2, identifies that the 18 premium over 21 MPG is now at a record not seen since September 2011
in deflated terms (current day dollars) occurred during April 2011 at 523¢/kg cwt
price series overlaid with percentile ranges which shows that the current average monthly NSW mutton price has remained in the 80-100th percentile range since April 2016. Unquestionably, mutton prices are holding firm with the January average of 394¢ sitting at the 90th percentile when compared to the deflated price data series since 1949.