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A big year ends on a high

Posted on by Caitlin Dearden

The last full week of sheep and lamb sales has seen 2017 finish as it began.  Streaking higher.  This week saw the Eastern States Trade Lamb Indicator (ESTLI) post a six month high, in spite of a record yarding.

There is an old saying in markets. “The best cure for high prices is high prices”. The theory goes that higher prices encourage increases in supply, which in turn sees prices fall. The adage doesn’t seem to apply to lamb markets at the moment.

The record December lamb prices have indeed drawn out more lambs. Figure 1 shows east coast MLA yardings in the week to Tuesday staying strong, at 275,231 head. While down on the record yardings of the previous week, supply remains very strong.

As we keep saying, the strong supply is not having the normal negative impact on lamb prices. This week the ESTLI gained 26¢ to 661¢/kg cwt (figure 2) a six month high. In fact, the ESTLI is now just 26¢ off the all-time high set back in April.

Figure 3 shows part of the reason we have seen rapid price rises at the yards. The rain in NSW has seen tightening direct to works supply, with slaughter lower in the last couple of weeks. Processors have needed to buy up the yards to fill their kills.

The week ahead

A phenomenal year of lamb and sheep prices is almost over. Figure 2 shows that it has been a rare event for the ESTLI to be below 600¢, and this in a year when supply is likely to finish at a similar level to 2016.  In 2016 prices spent just 3 months above 600¢.

The December price rise is not unprecedented, the market rallied at the end of 2014 and moved sideways in early January. This year, with lamb supply having been so strong in the spring, there is the chance that the usual strong January demand might be met with tight supply, and the ESTLI might have a tilt at 700¢.

Waning export values draining the impetus from cattle

Posted on by Caitlin Dearden

It was another poor week for beef export values, and cattle prices reacted accordingly.  As we reach the end of the year attention will turn to weaner sales in Victoria, with the main fundamental which will swing the market being rain in Queensland.

In some way we seem to have seen demand for cattle shift to sheep and lamb markets.  Cattle supply is down, yet prices are weaker.  In sheep and lamb markets, prices are higher, yet supply is stronger.  An interesting conundrum.

Weaker cattle yardings (figure 1) couldn’t provide support to cattle markets this week.  East Coast yardings fell 12% back to a one month low and below the same time last year.

Yet the weaker supply was met with weaker demand.  The EYCI lost 9¢ to 569¢/kg cwt, but it was really only young cattle which weakened.  Trade and Heavy Steers, and Cows all remained relatively steady on a national basis.

If we look at prices relative to this time last year, it is Cow which are performing the best.  The East Coast Medium Cow Indicator is 6% below this time in 2016, while the EYCI and Heavy Steers are both 9% lower.

The Western Young Cattle Indicator was the star performer of the week.  The WYCI gained 39¢ to 591¢/kg cwt.  A solid rise, yet the WYCI was only making up ground lost last week, and remains 10% below the same time last year.

The week ahead

Figure 2 shows the easing 90CL indicator, which now sits around the same level as the EYCI and the WYCI.  Export markets generally ease as we move into the end of the year, but often recover in January.  There is a reasonable chance the export market will provide some support in the New Year.

As mentioned at the start of this article, it’s Queensland and Northern NSW rain which is going to provide the real upside.

A joyous wool market to all

Posted on by Caitlin Dearden

Christmas presents came early for wool sellers this week with a strong “across the board” result in all three selling centres. The strongest evidence of woolgrower satisfaction was the low pass-in rate of just 3.1% nationally.

It was noted in AWEX reports that “buyer interest intensified” to capture market share with only one selling week remaining prior to the Christmas recess.

The benchmark Eastern Market Indicator (EMI) gained 23 cents to close the week at 1699 in Australian dollars (a new record), while despite an easier Au$ level a similar story resulted in a 11 US cent increase. The good news was also evident in the West with the WMI lifting 37 cents closing the week on a strong note.

Main interest focused on well measured wools, and skirtings with low VM content were also keenly sought. However, such was the enthusiasm to secure volume by exporters that the lower spec wools were also carried along and posted similar improvement.

While the prices increased for all MPG’s, it was the 18.5 and broader that stood out. In fact, this week it was the Crossbred and Cardings with the largest price lifts. 28 MPG in Sydney was plus 54 cents, while 30 MPG in Melbourne gained 58 cents, a 10% lift for the week!

Tagging along the good news examples was the W.A. 20 MPG category that showed a lift of 52 cents.

This year has been terrific for anyone selling wool, demand is strong, the Au$ is steady and buyers are finding plenty of orders to account for the weekly offering. Next week we will compare the various wool categories price movements for the year, but for now, wool producers can certainly celebrate a year to remember for the wool market.

The week ahead

The bale offering over the last few weeks has been sizeable, with 49,000 bales again cleared to the trade. Next week is the last sale for 2017 before a three-week recess with 52,300 bales to be offered.

We expect that the Christmas cheer will again be in abundance next week as exporters bid strongly to secure supply. There is a school of thought that the first half of 2018 might provide less volume due to earlier shearing patterns, if this is the case the market is likely to remain solid for some months at least.

The bear necessities.

Posted on by Caitlin Dearden

A tough week in the grain market as the scaleof the global crop continues to bite hard. In this article, we will look at some recent WA forecast releases which paint a bearish tone.

Let’s start with the futures market. In figure 1, we can see the futures market since the beginning of October, and it’s not been particularly pretty. In the past week Chicago spot futures have dropped 5%, or 20.5¢/bu/A$9.6/mt. In Australia, producers have been cushioned from these falls through strong basis levels (thepremium or discount to futures).

The bulk of the fall can be attributed to StatsCan releasing more bearish data which is dragging the market down. The Canadian government forecaster increased well above expectations the size of the wheat crop to just a tick under 30mmt.

On Tuesday ABARES released their December crop estimates (read analysis here), which unsurprisingly pointed towards an overall decline in production year on year, and against a range of averages. Yesterday the respected Grain Industry Association of WA (GIWA) released their December update. The GIWA group utilise a group of industrycommentators and agronomists to develop their estimates of the crop, which is updated monthly compared to ABARES quarterly report.

Western Australia had a poor start to the season, however had a very good finish. In mid-year, the crop in Kwinana and Geraldton was in a very poor condition and it seems like a miracle to see the crop coming to fruition.

The WA crop expected is now expected to reach the following levels:

  • Wheat – 7,375,000mt
  • Barley – 3,399,000mt
  • Canola – 1,770,000mt

In our update on the ABARES numbers, we commented that the WA canola crop had already exceeded forecasts. This is further highlighted by the GIWA forecasts, which are in line with what is happening on the ground. Interestingly, the extent of the development of the canola crop has been a surprise to many including GIWA, with a 33% increase since last months forecasts!

In table 1, we have summarised the wheat, barley and canola to give an indication on the zone by zone basis.

What does this mean?

The USDA will release the December WASDE, this report will further cement the scale of the global crop, but will largely be bereft of any major surprises that the trade has not already factored in.

As we get closer to Christmas, can we expect to see any surprises presents from traders as they pay up to accumulate before the long Christmas break?

Never mind Bitcoin, how’s this trade lamb!

Posted on by Caitlin Dearden

In last weeks comment we mentioned that the rain could provide a short-term boost to lamb prices, and indeed it did. We surmised that the extra moisture could see a pullback in supply with processors fighting it out at the saleyard, although that didn’t appear to be the case, signalling this week’s movement was demand led.

Figure 1 shows the rainfall pattern for the week ending on the 7th of December and despite some areas not receiving the magnitude of rain forecast there was still some ample falls to much of Victoria and NSW. Despite the rain there was no detrimental effect upon supply in these states with Victorian lamb throughput up 19% and NSW lamb yarding up 4% on the week.

The increased throughput having little impact on east coast lamb prices with the ESTLI climbing 3.5% to close yesterday at 635¢/kg cwt.  – figure 2. The WATLI stronger too, posting an 11% increase to 640¢ as lamb throughput there trekked sideways.

Mutton prices firming too on the week across the Eastern states in the face of higher saleyard volumes with the East coast mutton indicator up 3.5% to 487¢. West Australian mutton one of the few categories to see lower week on week throughput, falling 8.6%. The lower supply providing a boost to WA mutton prices – up 8% to 387¢.

The strength of recent lamb and sheep prices no mean feat when you consider how much above the seasonal average the combined east coast throughout levels have been tracking of late – figure 3. Indeed, at sitting just shy of 385,000 head the East coast lamb and sheep yarding is 19% above the five-year average for this time in the season.

The week ahead

Much lighter falls are forecast for this week across the nation with less than 10mm predicted for most of the sheep country. Its unlikely the magnitude of the recent price gains for the ESTLI will continue into next week, even with the seemingly robust demand.

Trade lamb prices in excess of 630¢ are going to continue to encourage producers with capacity to deliver stock to keep coming forward. But as we often say, more supply now can mean less available for later. What this may mean for supply and prices as we head into 2018 is an exciting prospect for producers.

A stagnant cattle market not moved by rain

Posted on by Caitlin Dearden

While lamb and sheep prices have reacted to the rain in Victoria and New South Wales, the heavy falls didn’t make it to Northern NSW and Queensland. As a lot of cattle come out of this area at this time of year, national indicators were stagnant.

Eastern Young Cattle Indicator (EYCI) yardings did fall away from the 7 month highs of last week, but remained relatively strong (figure 1). Seemingly demand was a little weaker. The EYCI tracked sideways, finishing Thursday at 579.25¢/kg cwt, and has now spent 6 weeks around this level.

It’s probably not surprising, but the major mover in cattle markets this week was the Victorian Restocker Indicator (VRI). The VRI rallied 36¢, or 12% to 305¢/kg lwt, but remains well behind it’s Queensland and NSW counterparts, which sit at 359 and 328¢ respectively.

We thought the rain might cause some transport disruptions, and hence stronger prices for slaughter cattle.  But like the EYCI, slaughter cattle values were largely steady, or even lower in some cases. Trade steers seemed to be the hardest hit.

Export beef prices also eased this week, which might explain some of the lower slaughter cattle values.  The 90CL Frozen Cow Indicator fell 17¢ (figure 3), or 2.5% to a 6-week low of 592¢/kg swt on the back of weaker demand from the US. There are also reports New Zealand cattle slaughter is ramping up, which it does seasonally, and increases supplies of lean beef.

The week ahead

With just two weeks to go until the Christmas break, it seems cattle prices are set to track sideways into the end of the year. We won’t have wait long after that for a significant move in cattle prices, as we generally get one over the Christmas break.  A good rain in Queensland can kick prices higher, and dry weather might see prices ease.

Is retail lamb set to rise?

Posted on by Caitlin Dearden

It will come as no surprise that retail lamb prices follow the saleyard and with lamb prices holding their ground into Spring this piece takes a look at what that may mean for the end consumer into the coming season.

Figure 1 highlights the price pattern since 2000 for both retail lamb prices and the Eastern States Trade Lamb Indicator (ESTLI). Progressive seasons from 2013 onwards have seen saleyard lamb prices make successive higher peaks and troughs. Indeed, lamb producers have been enjoying some record results during the period, with the quarterly average ESTLI increasing 98% from 331¢ in quarter four of 2012 to 657¢ as at the second quarter of 2017.

Retail prices have also gained during the 2013-2017 period, although competitive pressures at the supermarket and butcher shop have meant that retail lamb prices have only managed a 19.8% gain from $12.52 in quarter four of 2012 to $15.01 for quarter two of 2017. This has meant the retail mark-up over the saleyard price has narrowed from 278% to 128% over the four-year period.

Figure 2 highlights the narrowing of the mark-up, such that the most recent quarters figures see the mark-up percentage sitting below the normal range and just a fraction above the lowest recorded mark-up since 2000 at 123% during quarter one of 2014.  Indeed, the current mark-up of 128% is 34% below the long-term average mark-up measured since 2000 of 194%. As the grey banding demonstrates the mark-up has fluctuated between 139% and 247% for 70% of the time from 2000 to 2017.

A time series analysis of the percentage movement over the quarter for the ESTLI and retail lamb prices shows that retail lamb price movements lag the saleyard – figure 3. The narrowing of the mark-up between retail lamb and saleyard lamb prices below the normal range suggest that either saleyard prices need to ease or retail prices have to increase in order for the mark-up to get back into the normal range.

What does this mean?

Given the tight supply scenario is going to be maintained into the 2018 season and we have seen an improvement from the unseasonal dry Winter to more average climatic conditions as the 2017 season comes to an end its unlikely that the saleyard lamb prices are going to come under significant pressure.

This suggests that retail lamb prices are set to probe higher in the coming months unless retail competition can keep margins tight – maybe it is time to accept the dinner invitation with Tom Cruise instead of having the lamb roast at home!

Key points:

  • The retail percentage mark-up of retail lamb prices over the ESTLI has narrowed 54% since 2013
  • The most recent quarterly mark-up is sitting at 128%, 34% under the long-term average mark-up and is below the normal range recorded since 2000 between 139% and 247%
  • Forecast supply and climatic conditions into 2018 suggest that a widening of the mark-up is more likely to come from higher retail lamb prices rather than softer saleyard prices

An early shear bring pre Christmas cheer

Posted on by Caitlin Dearden

With the Christmas recess looming the market regained some upward pressure this week as exporters tried to lock in their requirements. Fine and medium fibre prices built up gradually across the sales, while most of the crossbred market moved into negative territory.

The Eastern Market Indicator (EMI) gained 7 cents to the week in Australian dollars, but when converted to US dollars, felt just a 1 cent increase. The story was similar in the West with the WMI lifting 8 cents.

Results from the superfine sale in Sydney this week were positive with a 36 cent gain for 16.5 micron fibres. This was the best result on the board with the other fine categories ranging from slight retractions to an average 20 cent gain. Medium fibre (19.5 to 22 micron) prices managed to correct themselves from the levels of the week prior. Rises of 15 to 25 cents were common at all three selling centres. Most microns and categories in the skirtings market received support in line with the gradual increase of the fleece market.

The crossbred market failed to bounce back like the Merino market this week. Prices continued to drop in the margin of 10 to 25 cents, particularly for lots that were poorly prepared. Locks and crutchings managed to attract some stronger prices in the oddments market and we saw washing lambs at extreme levels for the finer lots. The cardings indicators moved up slightly, with an average 3 cent increase across the three selling centres.

The week ahead

The bale offering over the last few weeks has been sizeable, and this is set to continue with 50,828 on offer next week. There has been discussion that the good market has driven a lot of growers to pull their shearing dates ahead of schedule this year. Given the offering we’ve seen over recent weeks, It looks as though many growers are running about a month earlier than on a typical year. If this is in fact the case, we expect that supply will drop out slightly in the new year.

And the waters prevailed on the earth… Gen 7:24

Posted on by Caitlin Dearden

Forecast rain in the South-East corner of near biblical proportions for the week ahead keeps restocker interest high at the saleyard and young cattle prices across the country firm slightly in response.

Figure 1 highlights the anticipated rain event, with falls noted into the 200-300 mm level in Northern Victoria and falls of at least 50mm to much of Victoria and NSW. While its not great for many out there trying to complete this season’s harvest it’s a boost to backgrounders, with the high moisture and warm weather giving a lift to pasture growth in the coming weeks.

Indeed, spirits of restockers across the east coast have been encouraged and this has played out in restockers continuing to pay above average premiums at the saleyard for young cattle. The East coast restocker spread pattern showing that they are happy to pay over 6% more than the headline EYCI to secure stock – figure 2.

In an analysis piece released on Mecardo last month the main driver for the increased restocker spread was coming from Northern restockers. However, in recent weeks the Southern restocker premium has lifted too with premiums over the EYCI of 4-5% noted during November being paid, reflecting the growing optimism for a good Summer grazing potential as we head toward the end of the year.

The EYCI finished the week up 2.5¢ to 579.75¢ and the Western Young Cattle Indicator (WYCI) was also higher, lifting 13¢ to 585¢. This was despite the 90CL Frozen Cow easing slightly to close at 609¢/kg CIF – figure 3.

The week ahead

Its hard to see young cattle prices ease into the coming week with the amount of moisture that is forecast. Producers know its going to translate into decent pasture and they hate seeing grass going uneaten when they know cattle could be getting fat on it.

Make sure you stay safe out there this weekend and remember – don’t drive through flood waters. Oh, and spare a thought for the frantic lot trying to get as much harvested before the deluge.

 

Rain pain for the grain

Posted on by Caitlin Dearden

We set out trying to work out what the heavy rain which is falling across all eastern cropping zones over the coming days will do to prices.  It’s not as simple as looking back at 2010-11 when harvest was delayed, as that was a bumper crop, and this is not.  We’ll have a look anyway.

Figure 1 shows the impact of heavy December rain back in 2010 on feed wheat prices delivered Melbourne.  Over the course of two weeks the price lost $70/t as shot and sprung wheat was harvested and overwhelmed feed users.  Basis to CBOT moved to an all-time low of around -$70/t, as CBOT rallied due to the now tighter supply of Milling Wheat coming out of Australia.

Due to the much tighter total supply of wheat, we don’t expect such a dramatic fall in feed prices this year.  We could however see a spike in milling wheat prices, as already low supplies are exacerbated by downgrades.

The market has already started to move.  APW Geelong rallied $5/t today, up to a 7 week high of $265/t.  In PortAdelaide APW gained a little ground, but remains at $250/t.  SFW delivered Geelong hasn’t moved yet.  In fact it was a little yesterday, at $228/t.

In international markets price were down this week, Dec-17 CBOT hit a contract low 411¢/bu (figure 2).  In AUD terms CBOT is at just $202/t, down around $8 for the week.  Basis just keeps getting stronger.

The week ahead

As we outlined in the Canola analysis earlier in the week, it looks like a hold at the moment.  Sales of milling wheat, for those fortunate enough to have it in store already, can probably and wait to see how prices wash out after the rain.  Feed grain prices are unlikely to find any strength from here, so if looking for cash flow, feed barley and wheat would be grains with the least upside, and most downside.