Tag: article

Another record for wool.

Posted on by Caitlin Dearden

AWEX identified an interesting statistic this week; the turnover of wool sold this week of $96 million was the largest since 2002. The kicker is that while this week it was generated by the sale of 49,000 bales, in 2002 it was on the back of an offering of 74,500 bales. So, a similar $ value heading back to rural Australia but 33% less bales produced.

It was a steadier week with the Eastern Market Indicator (EMI) finished the week at 1,683¢, gaining 2 cents and AWEX reporting this another new record high in Australian dollar terms. The Australian dollar was slightly lower over the week, with the EMI in US$ terms losing 13¢ to end the week at 1,279¢.

Again, a small pass-in rate this week of only 3.2% of the offered bales, resulting in 49,009 bales cleared to the trade. This is one of the largest weekly sale volumes for this selling season, with only the first week after the winter recess larger. Fig 3.

Some of the recent “heat” dissipated from the market this week with reports of “mixed results” where quality again was a factor; or more accurately lower quality wool at times struggled. This has been a pattern for the year however in recent weeks when the market rallied lower grades were supported.

Crossbred wool fell sharply losing as much as 50 cents reflecting the volatile nature of this sector. In contrast, Cardings continue to improve and set new records with all centres showing strong lifts across the week.

We have commented previously that the current market conditions are unique in our time of observation. Supply is moving through the system quickly; that is there are little stocks held either on farm, in broker stores or in mills. Sheep farmers are experiencing record income inflows; with not only wool prices good but so too are sheep and lamb prices. This will mean that any retracement in price in the future will be met with “cashed up” wool producers holding back wool from the market and reducing supply to processors.

As we said, these are unique times where it could be argued that the producer is able to influence the market by withholding supply. The qualifier is that any supply “squeeze” may have short term market influence but it is unlikely to be a long term positive factor on price. In the end, customers will adjust orders to meet supply and pay a price that works for their customers at retail level.

The question of “when or if” the market reaches a top is coming to mind now, we know markets don’t rally forever and that they don’t track sideways for long either. Mecardo had a look this week in the article What is the risk in the wool market at present

The week ahead

The big offering this week is to be followed by another 48,700 bales rostered for sale next week across the three selling centres (Figure 3). The roster then lists 44,000 for the following two weeks. Of note is the strong report from Fremantle this week, generally a solid market on Thursday in W.A. with the 3-hour time delay to the East Coast is a good lead for next week.

WASDE & Indian barriers

Posted on by Caitlin Dearden

The US Department of Agriculture released their World Agricultural Supply and Demand Estimates overnight. In this week’s comment, we will take a look at the impact on wheat, and report on new import barriers being erected in India.

In last week’s comment, I mentioned that this report would be released, and that there would be little in the way of surprises. This has largely been the case, with no major changes occurring. Unsurprisingly, the Russian crop was further increased by 1mmt, to a record wheat harvest of 83mmt. All in all, without beating around the bush, we are still in a world with a glut of wheat (fig 1). There are arguments that a large proportion of this stock is in China and not available to the export market, however the reality is that global prices are likely to stay depressed for some time.

The USDA have a relatively poor performance when it comes to forecasting Australia, and we tend to believe that the WASDE is usually around 2 months out of sync with reality. In table 1, the WASDE details for Australia are detailed. The items which stand out for future revision for me are:

  • Beginning stocks: These are likely too high, and after such a strong export program this is likely to be revised back close to 5-5.5mmt.
  • Production: USDA remain on the high end of the spectrum when it comes to Australian forecasts. A final production figure closer to 7mmt is more likely.
  • Exports: An export program of 17.5mmt is extremely ambitious for the coming year, and when production and beginning stocks are brought back to reality will be a hard task to complete.
  • Domestic consumption: The domestic consumption figure is sitting on the previous ten-year average, however this year there are a record number of cattle on feed.

So how did the WASDE report impact the markets? The answer is unfortunately for growers is minimally (figure 2). There was little in the way of surprises, and the report largely met trade expectations. After some short covering in the lead up to the report, the market regained it’s losses and is 5¢/bu or A$1 higher than this time last week.

A couple of weeks ago I flagged in the comment, “An Indian Summer”, that the Indian government was likely to implement a 20-25% import duty on wheat. In the past two days, the import duty on wheat was set to 20%. This is in place to discourage imports of wheat, and give positive price signals to local growers. In figure 3, Indian wheat futures on the NCDEX exchange are plotted, and we can see that yesterday the market started the day at A$345 shortly hitting A$353, and ending the day up A$3.

Although we don’t regularly examine pulse markets, a massive duty of 50% has been applied to peas. This is largely to disrupt the import from Canada, but for pea growers in Australia this will be felt.

What does this mean?

The November report is out of the way, and the December report is largely void of any worth. This means that by now and February the only influences on the global market from a fundamental point of view with any value will come from either Australia or South America.

We are going to have to wait until the northern hemisphere weather risk period to see any substantive rallies in the futures market. This does however provide opportunities for consumers to hedge values, or for growers to take out long swap positions.

Young cattle supply up but
Queensland prices still on the rise.

Posted on by Caitlin Dearden

The cattle market stalled for young cattle this week as more rain fell in part of NSW and Queensland, but supply managed to improve.  While young cattle supply was a little stronger, this didn’t stop some solid rises in some interesting indicators.

We are still coming to grips with Meat and Livestock Australia’s new weekly stats, which come out on a Wednesday, with supply data to last Friday. For yardings figures we find it a little hard to match prices with supply, as we are running about 4 sale days behind.

Anyway, what we do know is that young cattle supply in Eastern Young Cattle Indicator (EYCI) saleyards was up 8% in the week to Thursday (figure 1), and this halted the rise in the price, as it stalled at 578¢/kg cwt. In fact, EYCI yardings hit their highest level in 8 weeks. While the EYCI eased marginally, it remains close to its highest level in 15 weeks.

The Queensland Cattle Market Index has been catching our eye, it hit 307.6 points this week. Heavy steers helped to drive the QCMI, as prices rallied 50¢ in the past two weeks to hit a 19 week high of 531¢/kg cwt.

Figure 2 shows that Queensland Heavy Cattle are not far off the price of this time last year, and they are the most expensive heavy cattle in the country. The Queensland 100 day grainfed steer over the hooks indicator ticked 3¢ higher this week, but is languishing behind at 507¢/kg cwt.

The week ahead

It looks like it’s going to be relatively dry for the coming week, on the east coast at least, which might see prices track sideways. There is a little upside left in the slaughter cattle market if export prices remain good, but young cattle markets might find it a little harder to keep rallying without more rain.

Mixed market at Spring crossroad

Posted on by Caitlin Dearden

A number of mixed market signals this week across state saleyards for sheep and lamb, as the seasonal Spring price decline looms. Needless to say, on a countrywide level all categories posted price increases between 0.2% to 3%, apart from Restocker Lambs with the national saleyard indicator off 1.2% to 679¢/kg cwt.

The Eastern States Trade Lamb Indicator (ESTLI) was up 1.3% to 628¢, a gain mirrored by the National Mutton Indicator which staged at 1.4% lift to 422¢/kg cwt. Victoria was the only state to show significant increases to lamb throughput this week, with a 12% rise in yardings to see over 83,000 head recorded – Figure 1. All other states registered flat to lower lamb throughput with the East coast lamb throughput tracking sideways.

This was not the case in the West, as producers responded to last week’s drop in trade lamb prices to see WA lamb yardings off 23% – Figure 2. The tighter numbers are giving the Western Australian Trade Lamb Indicator a boost, up 18.5% to 520¢, although it is still sitting over $1 below its East coast counterparts.

Mixed signals were received in mutton markets too this week as higher East coast sheep throughput unable to dampen prices, signalling demand remains firm on the Eastern seaboard. The East coast saleyards reporting a 20% lift in numbers to 84,600 head, buoyed by higher mutton yardings across all of the Eastern states – Figure 3. In contrast, WA mutton markets are showing a textbook response to higher mutton supply, with yardings up 22% and the WA mutton indicator off 2.3% to 304¢/kg cwt.

The week ahead

It’s not uncommon to get mixed signals as markets begin a change in trend. Certainly, the increasing lamb throughput for Victoria has a way to play yet, as we sit about mid-way through the Spring flush. The seasonal supply boost as we head toward Summer should start to weigh on the ESTLI in the next week or two, particularly as it begins to dry out in the south.

The rainfall pattern expected for the week ahead broadly replicates what we saw last week, although slightly lighter falls are expected for NSW while SA and Eastern Victoria are set to benefit from a bit more moisture.

China driving beef exports in October

Posted on by Caitlin Dearden

It has only been a week since China’s ban on a number of Australian beef exporters was lifted.  Without the ban, beef exports could be expected to surge in November, but despite weaker total exports, the trade with China has already hit a two year high in October.

We continue to bemoan the lack of weekly slaughter data, export data can be a bit of a proxy for beef production. Total beef exports for October fit nicely with the theory that cattle supply has been tighter, and pushing prices higher.

Figure 1 shows that while Australian beef exports remained very strong relative to last year in October, exports did decline relative to last month and winter figures. On average total beef exports rally in October as cattle supply improves, but rather than a 5% increase on September, we saw a 2% decline (figure 1).

Changes in beef export volumes to Japan and the US were broadly in line with the total trends. This is expected as Japan and the US accounted for 48% of total beef exports. There were a couple of big movers however.

Exports to South Korea were much lower, down 18% on September and 20% on October last year. Making up for lower exports to South Korea were surging exports to China (figure 2), which were up 37% on September and 60% on October last year. In fact, despite the ban on some processors, beef exports to China were at their highest level since December 2015.

China failed to move into third place as our export destination, but the 11,353 tonnes fell just 15 tonnes short of South Korea.

What does this mean?

Weaker cattle and beef export prices (figure 3) in September and October may have helped drive increased exports to China, as it is a price sensitive market. It will be interesting to see if November and December exports to China are as strong, with a recovery in prices likely to have been passed on to importers.

Other major export markets generally have more money than China, and with higher prices and a smaller supply, Chinese exports may subside despite the reopening of the market to the banned processors.

It is good to see demand for Australian exports is still strong, and the Chinese are seemingly poised to soak up supply when prices get cheap enough. This suggests there might be a solid floor in the market until there is a heavy increase in supply.

No need for Rekindling, wool market is on fire

Posted on by Caitlin Dearden

What a week, Rekindling wins the Melbourne Cup while the wool market catches fire! If we thought last week was good when the EMI jumped 45 cents, this week the increase was 58 cents – more than a 6% increase in 2 weeks.

The Eastern Market Indicator (EMI) finished the week at 1,681¢ with AWEX reporting this another new record high in Australian dollar terms. The Australian dollar was slightly lower over the week, with the EMI in US$ terms posting a rise, also of 40¢ to end the week at 1,293¢. The EMI in US$ terms is edging higher, however it is still well off its previous record of 1504 cents set in July 2011.

Only 1.3% of the offered bales were passed-in, resulting in 42,846 bales cleared to the trade. Slightly fewer bales were offered compared to last week and therefore fewer sold, however this volume is as expected with the spring deliveries arriving, so all in all this clearance is a good strong market signal.

Looking at the market, demand was excellent with AWEX reporting lots “across the whole Merino spectrum were hotly contested”. It was also noted that discounts for “wools with inferior test results” disappeared as buyers scrambled to secure market share.

Some of the stand-out performers deserve special mention; the Cardings indicator lifted on average 63 cents across the three selling centres, to post a record level. It’s worth reflecting to compare to the dismal days of 1999 when the Cardings indicator bottomed at 236.

Another sometimes over looked type is the 32 MPG, this week it lifted 81 cents or 20%, an extraordinary move in one week.

In fact, the entire crossbred range lifted by 50 to 80 cents, slightly over shadowing the strong rise in the Merino section in a week of records.

The forward market as expected also kicked into gear, with buyers showing confidence in the near-term outlook by bidding out as far as August 2018; as an example, 19 MPG for July 2018 traded at 1870 cents.

The week ahead

49,486 bales are rostered for sale next week across the three selling centres (Figure 3). The roster lists 41,000 and 44,000 for the following weeks. It’s hard to see that this future offering will have a negative effect on the market following this week’s bull run.

All harvests eve

Posted on by Caitlin Dearden

Australian is on the cusp of being full blown harvest, with all states (ex Tasmania) showing some activity. In the coming weeks, harvest proper will be upon us, and we will start to see how accurate the crop forecasts have been.

The futures market saw a sharp drop mid week, with the December 2017 contract falling to contract lows (fig 1). This follows the seasonal pattern which has emerged over the previous two years “Wheat seasonality”. The lack of fresh data, along with a global glut of wheat has given rise to a continued bear market. However, overnight we saw a strong rally (fig 2) which recovered most of the losses of the past few days. This was likely a result of speculators taking profits from short positions, potentially (or hopefully) a sign that the market may be reaching a floor.

The bulk of the harvest is currently centred around NNSW, Queensland, Geraldton & Esperance. In the coming weeks it will move into full swing in the other areas. At present there have been some surprises, with growers getting better results than expected in Qld & NNSW, however the outcome is still going to be well below average.

In local pricing (fig 3), the benchmark APW1 price has seen falls of 1-2%, with South Australia seeing the largest falls. The market however continues to show very strong basis levels, and there are potential downside risks as outlined in our article, “Let’s look at historical basis”. The lack grower forward selling this season, could lead to a pressure on harvest pricing, which we have seen in recent years.

As more certainty on production comes to light, it is advisable to consider trading some physical wheat, as a cover for if basis levels do fall.  At present due to the unknown quality profile, it is prudent to continue to utilise multigrade contracts.

Next Week

In the next week the November WASDE report will be released, it is not expected to bring many surprises and the market will continue to have a neutral to bearish tone. It is unlikely that large market rises will occur prior to the start of the northern hemisphere risk market.

WATLI succumbs to supply, can the east hold on?

Posted on by Caitlin Dearden

Sheep and lamb yardings had another strong week, with Victorian lambs starting to run. Yet prices continued their solid reluctance to fall, maintaining levels well above last year in the east. Things are easing in the west, but also remain better than last year.

Figure 1 shows east coast lamb yardings for the week ending the 27th, and individual yardings suggest that Victorian lambs are starting to hit the market. Ballarat yardings were up to 40,500 head, while Bendigo remained strong at 34,000 head.

Usually the Victorian lamb run is what pushes yardings higher in November and December, but now it is just adding to already above average yardings in South Australia and NSW. Yardings in WA jumped 41% higher, and are well above normal for this time of year (figure 2).

Higher yardings in WA saw the West Australian Trade Lamb Indicator (WATLI) fall sharply, losing 44¢ to 521¢/kg cwt (figure 3), a nine month low. Despite being lower, the WATLI is 80¢ stronger than this time last year, even with higher yardings.

Last year the ESTLI followed the WATLI lower, after about a month delay. We keep saying we expect the ESTLI to ease in the spring, but there is only a month of spring left, and prices remain strong.

Mutton markets were the star performers this week, with the Victorian Mutton Indicator moving back to 450¢/kg cwt, and NSW not far behind. In contrast SA mutton is lagging around $1/kg cwt behind, or $20 on a 20kg cwt Merino. This suggests that supply in SA is starting to outstrip slaughter space in SA.

The week ahead

We keep saying the ESTLI can’t defy gravity for too much longer; and with cheap lambs in WA, export demand might start to come under some pressure. Last year we saw that the market declined 60¢ from the start of November through to Christmas as supplies ramped up.

Demand is stronger this year, and a 60¢ decline would see markets still at historically strong levels, but price will make current January forward contracts look attractive. More on this next week.

Expensive stores should turn a profit on grass

Posted on by Caitlin Dearden

Trade Lamb prices are continuing to defy gravity, and carrying other categories along with them.  Store lamb prices are at record highs for October, and some forward contracts have just been released.  The equation is pretty simple for January, when prices can be locked in, with profits likely to be smaller for lambs sold in December.

The recent strength in lamb prices has restockers starting to get a bit excited.  Figure 1 shows a strong rally in the National Restocker Lamb Indicator last week, as it sits at 699¢/kg cwt.  In dollar per head terms the indicator is sitting around $105 per head.

There is usually plenty of variability in the restocker price in ¢/kg terms, as the average weight can change week to week, and sometimes this doesn’t impact the dollar per head price as significantly as it would for trade or heavy lambs.

Restocker lambs are now at a record level for this time of year, and sitting around 90¢, or 15% above the same time last year.

If we assume trade lambs weigh 20kgs cwt, and restocker lambs 16kgs, and skin values is the same, the spread between restockers lambs and the ESTLI in dollars per head is shown in figure 2.  The ESTLI premium has been creeping lower, and at the end of last week sat at $12.4/head.  Basically this means 20 kg cwt trade lambs were making just $12.4 more than 16kg cwt restocker lambs.

Generally a narrow spread between restocker and trade lambs is driven by abundant feed, as producers opt to hold lambs in favour of weight gain, forcing store buyers to pay more.  So the question is whether there is any money in buying lambs are current prices.

Figure 3 shows some rough numbers on buying lambs at current prices, and selling at our worst, expected and best case price scenarios.  Finishing on grass, and getting the current trade lamb price will provide a pretty good return, which is what buyers are banking on.

What does this mean?

Getting the current price of around 630¢ would be our best case scenario, as we think there will still be a flush of lambs, and lower prices in December.

Our expected price for December is 580¢, which is likely to be close to break-even after costs are taken out, while a loss will be made at last year’s December price of 520¢/kg cwt.  Obviously it is hard for those feeding lambs at the moment, with store lamb prices, grain prices and finished lamb prices not really stacking up unless prices continue to rise.

Just yesterday forward contracts were released for January ranging from 580¢ to 630¢.  If lambs can be carried that far on grass then a profitable outcome should be able to be locked in now.

Rain soaks up supply

Posted on by Caitlin Dearden

Most of the eastern states received rainfall this week and despite higher throughput young cattle prices continued to climb, with the benchmark Eastern Young Cattle Indicator (EYCI) closing up 1.8% to see it at 577.50¢/kg cwt this week.

The improved young cattle prices in addition to a 5.3% lift in cattle throughput along the East coast saw this week’s yarding figures back near longer term average levels at around the 48,000 head region – figure 1.

This is the highest weekly yarding figure reported in nearly two months which suggests demand is managing to keep up with the extra saleyard volumes. Indeed, since the start of October weekly East coast cattle yardings have lifted 93% and over the same time the EYCI has managed to gain around 8% – it’s amazing what a bit of rain can do.

The price jump not just limited to East coast young cattle with the WYCI lifting 7.9% on the week to see it reach 568¢/kg cwt. Eastern and Western young cattle prices beginning to converge toward the key beef export indicator with the 90CL frozen cow holding ground over the last month between 575-595¢kg CIF and currently sitting at 587.4¢ – figure 2.

The week ahead

The rainfall forecast for next week shows falls of up to 50mm across much of Eastern NSW, with lighter sprinklings across the rest of the Eastern and Western seaboard – figure 3. Anecdotal reports out of the US suggest the 90CL could see some further gains in the coming few weeks as competition between domestic demand on the back of Thanksgiving celebrations, and increased offshore buying (particularly out of Asia) make an impact.

The prospect of continued rainfall and a solid 90CL export price should continue to provide further support to cattle prices locally over the next few weeks.