Tag: Analysis

The 7th poll & speculators

Posted on by Caitlin Dearden

A great week for farmers on the grain markets. The speculators whom many like to chastise for being involved in the grain markets, in combination with worsening weather, have helped put a little fire under the wheat market.

The futures markets have provided a welcome rally in the past week (figure 1) for grain growers. The market has largely been moved by poor weather conditions in the US & Europe. The speculators being very short in the market has led to ‘short covering’, which has magnified moves. So in future, when people complain about speculators in the market, remind them that it works both ways.

East coast basis levels have conserved their gains from last week, and continue to be in positive territory across all zones which we regularly monitor (figure 2). Although basis and futures have both risen, unfortunately for growers the A$ has also risen to 75.2¢ which has reduced some of the benefits but still overall positive for pricing.

The Poms went back to the polls last night for the general election to decide on the government for the next 4/5 years. This will be the 7th major vote the UK has had since 2014, if they were spread evenly they would have went to the polls once every 159 days! The first exit polls have been released pointing towards a hung parliament, but we have to take them with a pinch of salt. The result however of the exit poll, has been a fall in the pound (Figure 3), as a hung parliament will put the government in a weak position for Brexit talks.

Next Week

The USDA will release the June WASDE overnight. Will there be any surprises in this month’s report? We have seen issues in Europe, and it wouldn’t be a surprise to see some production downgrades.

On Wednesday ABARES will release their quarterly Australian crop forecast. The dry experienced in WA/SA will result in lower yields for the coming season. This is traditionally a volatile time, and if positive reports emerge we can easily see much of these gains lost.

Conflict Grains

Posted on by Caitlin Dearden

The last week has been quite quiet in the grain markets, with little in the way of new information. The lack of fresh data has had traders clutching at straws. In this week’s comment, we will take a general look at a potential source of volatility.
Figure 1
One of the pieces of information which traders have been keeping a close eye on is the situation in Ukraine. The eastern districts of Ukraine have been a flashpoint over the last couple of years with continuing violence between Russian backed rebels and the Ukrainian government. In recent weeks fighting, has escalated.

In recent years this violence has produced a number of black swan event which have driven prices, however the markets soon corrected as the flow of grain was largely unaffected. In figure 1, we can see that although violence has erupted, the Russian grain market has largely been unaffected.

Although it is always important to keep an open mind to these type of events, I am confident that unless wide scale warfare breaks out that the Russian/Ukrainian situation will have a minimal impact on pricing.

Figure2At a local level, we continue to see basis come under pressure. In figure 2, we can see that Geelong has now joined Port Lincoln in the negative basis club, with likely Adelaide to follow soon. The weight of harvest could likely keep basis levels depressed for sometime.

 

 

 

 

 

 

Next week

All eyes continue to be on the northern hemisphere weather, and the condition of the crop. At the moment there are no real major emergencies, and the market is quietly confident about the condition for 17/18.

The USDA world agricultural supply and demand estimates are released on Thursday, and we will update on them in next Fridays update.

 

Friday 13th not unlucky for national cattle prices

Posted on by Caitlin Dearden

A positive start for 2017 with gains across the board for national
cattle prices, despite the “Black Friday” finish to the first trading
week. The Eastern Young Cattle Indicator (EYCI) up 1% from last
year’s closing price to reach 640.5¢/kg cwt while the National
Medium Steer price, mirroring the percentage EYCI gain, also
1% higher to close at 296.8¢/kg lwt.

Feeder Steers posting the lightest of gains, up a mere 0.8% to
347.6¢/kg lwt. National Heavy Steers back above 300¢ with a
modest 3.4% increase from the 2016 finishing price to test
304¢/kg lwt. Trade Steers the best performers up 6%
to 345.2¢/kg lwt – figure 1.

The positive sentiment has flown through to the annual weaner
sales across the nation with heavier weaners (above 330 kg) fetching
between 350¢ to 400¢/kg lwt and lighter weaners (200-280kg)
going for over 390¢ to 440¢/kg lwt.

As outlined in our analysis piece this week a rebound in US cattle
futures prices (figure 2) have provided some flow through price
support for local cattle prices, relieving some of the downside price
pressure evident into the later months of 2016. Although BOM
three-month outlook to March 2017 suggests somewhat drier
conditions than normal for much of the eastern seaboard which 
may give restockers a reason not to chase prices for young cattle
too high into 2017, particularly if pasture growth begins to wane –
figure 3.

The Week Ahead

As we head into 2017 an anticipated tighter supply of available cattle and improved US cattle prices will continue to support local cattle prices.
On the flip side, a dryer start to the season for much of the eastern
seaboard and the prospect of a market correction into the later part
of 2017 or early/mid 2018 should act as a headwind on
prices outperforming the 2016 peaks.

 

Searching for some upside

Posted on by Caitlin Dearden

The wheat market is trying to have a rally, at least in international
markets, while locally the sheer volumes of wheat in store, and
seeping out into the market appears to be depressing basis.
Canola basis has improved, but unfortunately it’s been due to futures
falling, not physical rising.

You wouldn’t know it looking at cash prices, but CBOT wheat has
gained $18/t, or 9%, since the start of December. Figure 1 shows
that the spot contract, which is now March, is sitting at a 6 month
high in our terms, but it’s still just $209/t.

Locally some of the price increase was seen, with track APW moving
from around $212 to $223/t, although late this week it dropped
back to $215/t. APW Basis to CBOT is now just $5/t, and it’s safe
to say we are now sitting at export parity. The good news is that
basis is unlikely to weaken further, and price movement will be largely
dependent on what happens in the international market.

Canola prices have eased in the last week, now sitting at around $520/t
on a port level (figure 2). The fall has been due to easing ICE canola
prices, with local basis improving marginally (figure 3). It appears
there is still plenty of Canola finding its way into the market, hence
basis being $50 lower than in October. There remains some potential
for basis upside.

Barley prices are ok at Port terminals at $170/t, but up country values
have fallen to around $152/t on a Port equivalent. Feed Barley prices
are now likely to be below export parity, and as such there is no hurry
to sell at these levels.

The Week Ahead

With the decline in wheat basis, it is now only the H2 wheats and better which look like reasonable selling, everything else looks like a hold, as there is very little downside to be concerned about. Unless, of course,
the international market returns to December lows, but this is unlikely
at this time of year.

 

Wool’s market of to a flyer!

Posted on by Caitlin Dearden

At the end of sales for 2016, we noted that the wool market had
finished in line with its performance over the year, solid, firm and
resilient. There was generally a feeling of confidence, but the open
to 2017 was well above expectation. The market this week opened
strongly and then just got better.

The week started in Melbourne on Tuesday where the initial price
rises were led by the fine wool, and when Sydney joined in it had to
catch up with the early market quote reporting 18 MPG up 100 cents
compared to the last sale in Sydney of 2016.

This was a large offering, the 48,808 bales sold was 10,000 above
the average weekly clearance for 2016.

By the end of the week, the EMI had jumped 67 cents to be at its
highest level for 5 years and within 3 cents of its all-time high in
2011 (Fig 1). In A$ terms it sat at 1422, exactly 140 cents above the
level for the first sale in 2016. In US$ terms it’s at 1061, well above
the comparative year ago, level of 890. These are strong signals that
demand is improving. Percentiles are telling the story, with all types
except Crossbreds at the 95% level or better. (Table 1)

In the Mecardo report this week by Andrew Woods, Wool supply
update, the seasonal effect is starting to become obvious with the
good general spring conditions translating into the clip moving
broader. This is taking pressure off fine wool prices, in fact there
is now evidence of buyers
concern with this end of the market keenly sought out this week.

The micron movement of the clip will be most keenly felt in the sub 19
MPG which is reducing in volume, and the 20 microns and broader
which is increasing. This trend has further to run, even without further
rain for the next couple of months the path is set; the clip will continue
to move broader. As a result, the fine wool premium is likely to continue
to improve, resulting in higher fine wool prices providing that medium
wool categories can at least hold at these levels (Fig 2).

Crossbred types missed out on the general price rally and continued to
struggle, on the other hand the 30 – 40 cent lift in the Cardings indicator
pushed all 3 centres indicators to record levels.

The Week Ahead

Another big offering of 55,000 bales listed for next week, and based
on this week’s sales we expect that only crossbred producers will be
doubtful of turning up to sale. So, a big offering, however those we
have spoken to in the trade are not seeing this as a temporary spike,
and while not expecting to see the gains of this week repeated note
that the tight pipeline supply is keeping orders flowing at these levels.

The wool trade is also aware that listed bales for sale quickly drop
back to 40,000 per week.

 

Call it the Kekovich effect

Posted on by Caitlin Dearden

It’s been an extraordinary week in lamb markets. Lamb markets have Figure 1
reached high which are usually seen in winter in the second week of
January, a time when supplies are usually good. When prices rise it’s
due to falling supply or rising demand, we suspect it’s a combination,
helped by the ‘Kekovich Effect’.

Figure 1 shows that in the second and third week of January in the last
two years, and on average over the last five years, we have seen the
largest slaughter of the first half of the year. Normally heavy slaughter
equates to lower prices.

However, figure 2 shows that despite high slaughter rates, prices in Figure 2
January have been steady or higher. How do we explain higher supply
and steady or higher price? Call it the ‘Kekovich Effect’, driven by Meat
and Livestock Australia’s (MLA) Australia Day lamb marketing campaign.

Demand for lamb obviously increases before Australia Day, lamb processors need more lambs, and supply is usually compliant in early January.

This year it seems some processors have been caught short. This week’s
Wednesday and Thursday sales gave a taste of what processors are willing to pay, with many lambs selling for well over 600¢, and the Eastern Figure 3
States Trade Lamb Indicator finishing at 599¢/kg cwt.

Light lambs are doing even better, with restockers paying 661¢, and
light lambs selling for 607¢ on the east coast.

Mutton has also joined the party, with the National Mutton Indicator (figure 3)
rising 32¢ to hit a three month high of 407¢/kg cwt. Mutton demand is not
likely to have increased like lamb, but rising prices suggest small stock
processors can’t find enough lamb, and are turning to mutton.

The Week Ahead

As outlined earlier in the week, the heavy supply of December is
coming home to roost, with few shorn lambs ready, and sucker
lamb supply basically done. The Kekovich Effect has at least a
week to run, which suggests lamb prices might stay strong for
another week or so.

After that, don’t be surprised to see lamb prices ease back, as supply
improves, and demand weakens post the Australia Day demand peak.

 

A relatively sedate week

Posted on by Caitlin Dearden

After weeks of ‘excitement’ in the grain trade, it’s a relief to see a relatively sedate week. In this week’s comment, we look globally and locally. We also revisit the forward curve, and the opportunities for locking in forward swaps.


Let’s start globally, by taking a look at futures. In figure 1, I have plotted the spot futures. The market closed at a low of 402¢/bu this week, however overnight has regained some composure to close at 409¢, however ultimately is down 5¢ on the week. This is a fall of around A$2/mt which in the overall scheme of the previous weeks falls is miniscule. The market is treading water whilst we await more data, however with the northern hemisphere weather risk market close to an end the signs are not good, and growers need to make sure their strategy reflects this.

Yesterday I examined the proposition ‘Can basis save us?’, ultimately it cannot save us, but it can insulate us at times from the rest of the world. In figure 2, the basis levels are displayed, In recent weeks basis levels have traded in a narrow range, however maintaining at strong levels. At present grower selling is low and sporadic, therefore the question remains of what will happen when harvest arrives and growers start to sell.

In early July we recommended the use of a Dec’18 Chicago swap in our article ‘Should we lock a far forward swap?.’ In figure 3, we have compared the wheat forward curve for yesterday and the 3rd July, when the prior article was written. In that time the Dec’18 wheat futures have fallen A$42/mt stripping away the opportunity which was present.

What does this mean?

The focus firmly remains on the Northern Hemisphere. There are a few questions still remaining; How close have USDA estimates been to reality on both the wheat and corn crop?, how is the quality profile stacking up in France and Germany?, What will the Canadian spring wheat perform?

We have always advocated having an appropriate risk management strategy, to ensure that you are able to weather the storms as they develop.

The futures prices seen in July, are unlikely to be seen again this year, and we have to prepare for that.

StockCo in Negotiations to Sell Equity Stake to Elders

Posted on by Caitlin Dearden

Australia and New Zealand’s leading livestock funder, StockCo, has today confirmed plans to sell 30% of StockCo’s Australian operations to Elders.

StockCo Group managing director Marcus Kight, advised he was excited to be formalising what had been a very successful collaboration between StockCo and Elders since 2014. “The close working relationship between Elders and StockCo has resulted in positive outcomes for our mutual clients. The taking of an equity stake in our Australian business will be a great way to align growth ambitions for both companies and for StockCo to secure long term access to Elders’ impressive distribution platform.”

The close working relationship between Elders and StockCo has resulted in positive outcomes for our mutual clients. The taking of an equity stake in our Australian business will be a great way to align growth ambitions for both companies and for StockCo to secure long term access to Elders’ impressive distribution platform.

One of StockCo’s strategic imperatives has been to build a strong and diversified distribution capacity so that StockCo’s livestock funding products were easily accessible to customers throughout all livestock producing regions in Australia.

In this regard StockCo is committed to a multi-channel distribution strategy and currently has diversified distribution via the following:

  • a formal distribution agreement with Elders,
  • a formal distribution agreement with Ruralco,
  • a formal distribution agreement with Sprout Ag,
  • arrangements with a number of private and independent livestock agents,
  • broker agreements with selected independent agribusiness advisors, and
  • a direct to market channel whereby clients can deal directly with StockCo.

Mr Kight confirmed that the purchase of an equity stake in StockCo by Elders would not change StockCo’s multi-channel approach and that StockCo would remain an independent business providing livestock funding options to all Australian livestock producers in a manner that compliments existing banking relationships

About StockCo:

StockCo was formed in 1995 and is Australia and New Zealand’s leading specialist livestock funder. StockCo’s market leading products have become an important funding tool for Australia’s livestock producers. The benefits of StockCo’s livestock funding are:

  • Fund up to 100% of the purchase price of livestock for trading, backgrounding and finishing purposes.
  • Finance charges are payable at the time of sale of the livestock.
  • Security is taken over the livestock funded, leaving existing security arrangements with the client’s bank unaffected.

Facilities are designed to enhance client relationships with their existing banks. This is achieved by assisting clients to generate additional income from their existing asset base, or by increasing the scale of operations, without disrupting existing facilities or security arrangements with the client’s bank.