Tag: Analysis

Cows the star but EYCI at 22 month highs

Posted on by Caitlin Dearden

We haven’t seen an early January price rise for a few years, largely due to a lack of summer rain. This year we’ve seen store and cow markets lift in early sales as rain tightens supply and bolsters demand.

It is no secret that female cattle will be in hot demand if the rain seen over the last week continues.  Export beef prices have eased but they are still well above this time last year, and when processors have to compete with restockers, markets rally.

Figure 1 shows NSW and Queensland Cows have moved back towards November highs this week.  Cows are the star performers, gaining over 30% from the December close. Victoria is lagging behind a bit, at 408¢ this week, but they will no doubt join other states in the coming weeks.

The Eastern Young Cattle Indicator (EYCI) has also rallied strongly, gaining 13%, but importantly hitting its highest price since March 2018 (figure 2).  It is also the first time the EYCI has been higher than the five year average since early 2018.  The rain is making cattle bought at the southern weaner sales look cheap at the moment.

The 90CL Frozen Cow export beef price continued to ease this week, now sitting at 708¢/kg cwt.  It will be interesting to see of the 90CL can continue to fall, especially if cow prices keep rising and margin pressure comes on processors.

Over in the West, the Western Young Cattle Indicator (WYCI) has moved below the EYCI, a rare thing in recent years.  The wet weather in WA should see the WYCI find some support around the current 526¢/kg cwt level

Next Week:

For most of last year, we were looking at no rain for the week just gone, and none coming up.  This week the widespread rain is forecast to be repeated over the coming eight days, providing more impetus for markets.

At some stage, heavy cattle prices should start to follow young cattle, as fewer cattle make their way to processors.

Only one week in the doldrums for mutton

Posted on by Caitlin Dearden

Before Christmas mutton prices took a dramatic downturn.  The talk was Chinese demand suddenly evaporating.  The New Year has seen mutton return to previous levels, while lamb has also found some strength.

Figure 1 shows the bounce in mutton prices, the National Mutton Indicator closed 2019 at 489¢, and closed yesterday at 561¢/kg cwt.  Holding sheep for the extra three or four weeks has definitely been worth it, with $15-20/head added to the price.

Lamb prices have also bounced off 8-month lows hit at the end of December.  Figure 2 shows the Eastern States Trade Lamb Indicator (ESTLI) has gained 40¢ to start the year, moving to a nine-week high of 738¢/kg cwt.

While lamb prices are still behind some of the forward contracts on offer in the late spring, we can see from figure 1 they are well ahead of this time last year.  It took until May in 2019 for the ESTLI to move above 740¢/kg cwt.

In WA lamb and mutton prices have opened lower in saleyards, both well behind the east coast.  The WA Trade Lamb Indicator opened at 614¢/kg cwt, while the Mutton Indicator is at just 387¢.  If the rain falling in NSW keeps coming WA mutton will have to rise, or sheep will start travelling east in droves.

Next Week

The fire may have seen a short term spike in sheep supply, as have the higher prices early in the year.  We expected sheep supply to tighten anyway, but the wet weather on the forecast should see things tighten significantly.  It will be interesting to see if prices do move higher, whether they will be able to draw out more sheep.

Lamb supplies are less predictable, but rain, and potential grass growth, can only see more lamb retained, and less destined for processors.

Have you (ever) seen the rain?

Posted on by Caitlin Dearden

“Someone told me long ago. There’s a calm before the storm. I know it’s been comin’ for some time” and it arrived this week with some excellent rainfall to many areas in need. Combined with an improved three-month outlook from the Bureau of Meteorology (BOM) it helped give cattle markets a lift for the first trading week of 2020.

Social media abounded with images of water flowing across previously parched grounds and filling dams, not to mention aiding firefighters in fire-affected areas. Falls up to 50 mm were reported in places that hadn’t seen rain for a long time, particularly through northern NSW and Western Queensland.

The good news is that it isn’t over yet, as Figure 1 highlights, there is more in store for the coming week across the eastern seaboard. Cattle markets responded well to the news with modest gains of 5¢ to 45¢/kg lwt across most cattle types throughout the eastern states.

On the MLA reported national indicator cattle categories yearling steers purchased by restockers showed the strongest gains on the week, up 22.5¢ to 265.6¢/kg lwt. Medium cow also managed a strong showing with a 21.1¢ lift to finish at 205.3¢/kg lwt. The Eastern Young Cattle Indicator (EYCI) mirroring the broader market to see a 38¢ lift over the week, closing at 515.5¢/kg cwt – Figure 2.

As we pointed out in our analysis earlier this week the 90CL manufactured beef export price to the US has eased significantly from its 2019 peak, but thankfully the weather trumped the international beef market moves. Furthermore, there is still a huge gap for the EYCI to make up should climatic conditions remain favorable for an extended period and begin to encourage restockers back into the market in a serious manner.

Next week

The mid-month BOM rainfall forecast release shows there is some hope for the first quarter of 2020 with much of the country showing a 50/50 chance of a wetter or drier than average outcome – Figure 3. I know a 50/50 chance isn’t too much to get excited by just yet, but it is the most positive long-range forecast we have seen in some time.

The BOM suggests that the two key factors that had been keeping moisture away from the continent (a positive Indian Ocean Dipole and a negative Southern Annular mode) are now breaking down, allowing an improved chance of rainfall events occurring. Certainly, the week ahead is looking promising and this should give credence to a continued revival in cattle markets in the short term.

Wool delivers volatile opening

Posted on by Caitlin Dearden

The strong finish to 2019 wool sales provided the platform for an impressive open to the 2020 selling season. The robust demand over the Christmas break on electronic offer boards provided the entrée to spirited activity on the auction floor when sales recommenced on Tuesday.

However, the fragility of the market was reinforced on the final two days of selling. By Thursday, with only Melbourne & Fremantle in action the market had given back much of the early week gains.

The Eastern Market Indicator (EMI) lifted 79 cents early on Tuesday before easing to close at 1,609 cents, in the end an improvement to the 2019 December close of 51 cents. The AU$ strengthened, up .06 cents to sit at US $0.69. In US terms, this moved the EMI up 45 cents to 1,111 cents.

The Western Market Indicator (WMI) also had a good week gaining 16 cents for the week to finish at 1,687 cents. Initially, W.A. played catch up to the opening prices of Sydney & Melbourne, however, it then reverted to the buyers’ more cautious approach evident in later sales.

The national offering of 52,261 bales came forward, a typical elevated January offering. The pass in rate increased slightly (heavily influenced by Wed & Thursday sales) to 10.5% nationally. This meant that 46,789 bales cleared to the trade. This was the largest clearance of bales since January 2019.

The dollar value for the week was $80.95 million, while the combined value so far this season is $1.139 billion.

The market is currently displaying a level of “nervousness”, caused by a combination of relatively high prices, tight supply (with the expectation of further dwindling supply later in the year), and growers’ propensity to happily pass-in wool. This is a welcome situation for sellers, but equally a more difficult market for buyers and processors to navigate.

The crossbred types ended the week largely unchanged, although the strong buyer activity early in the week pushed crossbred wool prices up by 10 – 20 cents before retracing. Cardings in all centres finished stronger, ending the week 40 – 50 cents to the better.

The week ahead

Despite the late week fluctuations, the market performed well under increased supply.

Next week is another substantial offering of 59,890 bales. There will be a close watch this week on the offer boards to try to glean an indication of market direction.

“Spirited” bidding gives sellers an edge

Posted on by Caitlin Dearden

The wool market is drawing close to the end of year recess and like many of us, exporters were spurred on to fill their orders to ensure they make shipping cutoffs. Demand kept slightly ahead of the increased supply, with most categories posting small increases on the week.

The Eastern Market Indicator (EMI) rose 11 cents for the week to close at 1,503 cents. The AU$ had another positive week, rising .05 cents to US $0.689. In US terms, this pushed the EMI up 14 cents to 1,035 cents.

The Western Market Indicator gained 10 cents for the week to finish at 1,614 cents. Mid micron fibres received most buyer interest, with prices 20 to 40 cents higher for the 20 and 21 MPGs. AWEX reported that all types and descriptions enjoyed the scramble for volumes.

The national offering was significantly higher this week with an extra 4,393 brought forward. The total offering was 42,542 bales. With the rising market, the pass in rate fell; back to 10.7%. This meant that 37,985 bales cleared to the trade. While this is the highest weekly volume of bales sold so far this season, it was still 4,544 bales fewer than the same week in 2018. The total lag in bale clearance from this season to last is currently at a difference of 107,825 bales.

The dollar value for the week was $61.89 million, with the average bale value sitting at $1,629, drifting 16 per bale below last week’s average. The combined value so far this season finally tipped over the billion-dollar mark to $1.007 billion.

The crossbred sector saw mixed results between selling centres. In Melbourne prices lifted by on average 20 cents while Sydney ranged from 15 cent losses to 7 cent gains for the 26 and 28 MPG respectively. The Merino Cardings Indicators defied the wider market again, but this time contracting, with losses of 15 to 20 cents.

The week ahead:

Next week is the last week of sale before the wool market breaks for Christmas recess. 39,430 bales are currently on the roster, with sale days on Tuesday and Wednesday across the three selling centres.

Sales will resume on the week of the 13th of January.

Ovine yardings reaching a peak

Posted on by Caitlin Dearden

It is the time of year when lamb yardings reach their seasonal high, driven largely by Victoria.  It was Sheep that reached a record last week, however.  This is no surprise given the very good prices at a time of year when they usually hit their lows.

East coast sheep yardings reached a new record last week, but only just.  There were 139,490 head of sheep yarded last week (figure 1).  This was only 321 head more than five weeks ago, but it’s a number which hasn’t been seen in at least 12 years.

Strong sheep yardings are being somewhat offset by weaker than normal lamb yardings.  Figure 2 shows lamb yardings were 14% below the same week last year, but in reality, it depends a bit on how you match your weeks up.  It looks like lamb yardings might be a week behind last year, but we should know if we have seen ‘normal’ supply by the end of next week.

Trade and Heavy Lambs found a bit of strength this week, the Eastern States Trade Lamb Indicator (ESTLI) bouncing off 700¢ (figure 3).  The spread between NSW and Victoria still stands at around 40¢, while WA prices fell back under 700¢ after four consecutive weeks of rises.

The heavy mutton supply has seen buyers able to pull prices back slightly.  The east coast Mutton Indicator fell 13¢ to 568¢/kg cwt.  Opposite to lamb, mutton in NSW is cheaper than Victoria.  This is probably a quality issue.

Next Week:

With no rain on the forecast as we come into Christmas, expect some big yardings next week.  What it does to prices will depend on how many sheep and lambs are booked up for the workdays in the break, but recent contracts would suggest processors won’t be scrambling for supply.  The last week might this time see the lowest lamb price since April.

The record cow values didn’t last long

Posted on by Caitlin Dearden

Just a month ago Cow prices were over 500¢, and almost the same price as the Eastern Young Cattle Indicator (EYCI).  This week cow prices continued to tank, while other cattle types largely held their ground.

Figure 1 shows state cattle indicators declining sharply since hitting a peak five weeks ago.  This week the Queensland Cow indicator fell a further 22¢ to hit a six month low. Dire weather conditions and another uninspiring forecast has seen cattle continue to move into the market.

Cattle slaughter hit another peak last week, moving to new highs not seen since 2015 (figure 2).  Yardings were lower last week on the back of the lower prices, but they are still very strong for this time of year.  This combined with plenty going direct, means processors don’t need to bid up at saleyards for supply.

Adding further price pressure was falling 90CL export prices.  After peaking at 968¢ two weeks ago, the 90CL has fallen 40¢, but figure 3 shows it is still way above historical levels.  The falls were largely due to buyers taking a break after Thanksgiving, but Steiner report there was little business done.

In WA cattle prices moved in opposite directions for young and old cattle.  The Western Young Cattle Indicator (WYCI) fell 37¢ to still a quite respectable 527¢/kg cwt.  Cow prices in the west were up 8¢, to 207¢/kg lwt.  Cows in the west are now at a premium to the east coast.

Next week

There is no rain on the forecast leading up to Christmas, which isn’t great news for prices.  We often see a large shift in cattle prices between years, as it either rains or it doesn’t.  Good northern rain would obviously see a strong move upwards, but forecasts don’t look promising.

Cattle supply overcoming export demand

Posted on by Caitlin Dearden

There have been no real movements in strong export beef prices in recent weeks, but cattle prices have been on the decline in saleyards.  It seems slaughter capacity might have been reached, and with processors booked up until Christmas, demand at saleyards is on the wane.

As we move into December the season definitely hasn’t improved in a lot of areas, and the cattle keep flowing.  Cattle slaughter reached a six month high a fortnight ago and is still bumping up against four-year highs.

Figure 1 shows the last time cattle slaughter was this consistently strong on the east coast was in 2015.  Interestingly, the EYCI at this time in 2015 was 600¢, showing the difference restocker demand can make.  Heavy steer and cow prices were similar to what we are seeing now, but margins for processors were much tighter.

We can see in figure 2 that at the end of 2015 the EYCI and 90CL Frozen Cow were priced around the same level.  Now the 90CL is at a 450¢ premium, not quite double the EYCI.

Slaughter capacity has been up to 11% higher in the past, but processors are no doubt reluctant to invest in opening up more kill space given the declining herd.  A good rain will see the supply of all cattle types tighten, and would mean processors would face the costs of closing down the extra space.

Cattle prices were down across the board last week, with declines between 10 and 30¢/kg cwt.  This might see supply tighten, and have growers waiting until the New Year.

Next Week:

There is yet again no rain on the forecast, and the outlook remains bleak for the next three months (figure 3).  It doesn’t mean it can’t rain, but it is still more likely to be dry.  Cattle can’t keep coming forever, and it is likely we’ll see things tighten and prices steady in January.

All downhill ‘til Christmas?

Posted on by Caitlin Dearden

A strong offering had the typical effect on wool prices, the market sliding another step lower this week. Growers protested the downward trajectory in hordes with passed in rates hitting 20.4% to see a total of 7,765 bales returning to brokers’ stores.

The Eastern Market Indicator (EMI) lost 38 cents for the week to close at 1,492 cents. The AU$ opened strongly which played into the lack of buying enthusiasm. The AU$ rose 0.07 cents for the week to US $0.684. In US terms, this pushed the EMI down just 15 cents to 1,020 cents.

The Western Market Indicator experienced falls in line with the eastern markets. The WMI dropped 36 cents for the week to finish at 1,604 cents. AWEX reported that lesser style wools did not fare well in this week’s market. Buyers continually discounted their pricing levels and by the end of the series, had fallen 50 to 80 cents.

The national offering was 322 bales higher this week for a total of 38,149 bales. However, the high passed in rates meant the number of bales sold was down by over 2,000 on last week’s volumes. Just 30,384 bales were cleared to the trade for the week. This season’s bale clearance continues to lag well behind 2018 at a difference of 100,281 bales. The average weekly bales volume is currently 5,164 behind last year.

The dollar value for the week was $50 million flat, with the average bale value sitting at $1,645, drifting $19 per bale below last week’s average. The combined value so far this season is $945.47 million.

The crossbred sector fell across all microns, losing 20 to 45 cents. Oddments were the only category to record gains. The Merino Cardings Indicators rose by an average of 2 cents across the three selling centres.

Beef exports down but China still rising

Posted on by Caitlin Dearden

Beef export figures for November are out, and we are getting a picture as to why export prices have been running rampant. While the total supply of beef for exports declined in November, it didn’t stop China from posting yet another record import level. 

Cattle slaughter was still relatively strong in November, so it is likely the cattle were lighter.  November beef exports were down 9% in October, but up 9% in November 2018.  In fact, November exports have only ever been higher once, in 2014.

Declining export volume didn’t stop China from taking yet another record amount. Figure 2 shows China was easily the biggest market for Australian beef, taking 33%. The comparison numbers again show rapid growth. The 34.2 million tonnes exported to China (figure 2) was up 12% in October and 134% in November last year.

With 90% of the beef exported to China being frozen, it is pulling more and more beef away from the US. Figure 3 shows declining US exports, with November being down 37% on last month and 14% on last year. Exports in November were also the lowest for that month since 2016, when total supplies were much tighter.

The US share of exports was 26% back in November 2016, and just 13% last month. This share was the lowest since 2010. There is not a glut of beef in the US, they are still very much chasing our exports. It seems that China simply has more money for beef at the moment.

Japan and South Korea managed to maintain their share of our beef exports, but in general, they are after more expensive cuts of beef.  With manufacturing beef prices still rising, there might be some better cuts going through the grinder.

What does this mean?

We’ve been following the rising 90CL beef prices over the last month and the rally in price fits nicely with export flows. The reports of US buyers scrambling for beef in a rising price environment shows up in much more beef going to China and much less to the US.

The market is still waiting for Chinese beef demand to flatten out, and see some sort of equilibrium reached in export markets. At present, however, things are still highly uncertain.