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It’s a great time to be a wool producer

Posted on by Caitlin Dearden

With one of the larger offerings for this year the market performed very strongly this week. Every category posted gains. Records were set with the 19.5 MPG posting its highest level since its 2001 listing, and cardings topping 1300 cents in Melbourne, a record against our records going back to 2002.

The Eastern Market Indicator (EMI) rose 45¢ on the week to 1,623¢ with AWEX reporting this a new record high in Australian dollar terms. The Australian dollar was unchanged on the week, with the EMI in US$ terms posting a rise also of 35¢ to end the week at 1,252¢. The EMI in US$ terms is edging however it is still well off its previous record of 1504 cents set in July 2011.

Only 2.2% of the offered bales were passed-in, resulting 45,193 bales cleared to the trade. Again, this is a strong signal of the strength of the current market.

Whether these prices are a result of AWI market initiatives, or a response to reduced supply, or maybe just a normal improvement in the demand cycle, growers who have wool to sell now are receiving “best ever” wool cheques.

The rally also carried across to the inferior types; as is usual in a strong rally, wool carrying higher mid-breaks, or lower tensile strength, or greater VM got carried along by the surging market.

We are now at levels where predictions of future price directions become a bit of a guessing game. Will buyers (more importantly their customer processors overseas) pull back from this rally and we see the market retrace, or is this rally unstoppable and further increases are imminent?

Either way, wool growers should continue to sell as soon as wool is tested, and also take a close scrutiny of forward price bids to look for cover for some production for future clips.

The week ahead

42,722 bales are rostered for sale next week across the three selling centres (Figure 3). The roster lists 44,000 and 40,000 for the following weeks; based on current demand this should pose little challenge for the market to absorb.

A look locally and globally

Posted on by Caitlin Dearden

The market continues to follow a similar pattern to recent weeks. In this week’s comment, we look at futures & basis levels. In addition, we look at where our main competitor (Russia) is pricing its wheat. 

When it comes to wheat markets, we are in the dead zone. A time when there is a lack of fresh data to give the market a strong direction. In figure 1, Chicago wheat futures are displayed in both A$/mt & US$/mt. In A$ terms the Dec futures are up $7/mt week on week, however remain $1.7 down since the start of the month. The fall in the A$ against the US$ has helped balance against the fall in futures, so the fall has not been as strong (figure 1).

Throughout October, we have been warning readers that basis levels were unlikely to be maintained at levels seen at the start of the month. In the past week, basis levels have continued to fall (figure 2). This in combination with the low futures levels, reduces the overall price available to growers. The analysis article yesterday “Swap update” delves into more detail on using swaps to gain full advantage of the market.

The Russian crop keeps going from strength to strength, with estimates >82mmt. As we all know Russian/Ukraine are now our biggest competitors on the export market, and it is of paramount important to keep an eye on them. In figure 3, we can see that in A$ terms Russian wheat has increased strongly in the past month. This is helpful for Australian growers, as it makes our wheat compete more effectively.

Next week

At a local level, Australia is weeks away from the start of harvest and that is where our focus should lie.

It is important to ensure that you have a plan in place, for marketing your grain. At present grower selling is very low, and this could lead to a degree of harvest pressure on pricing.

Restockers digging deep again

Posted on by Caitlin Dearden

Analysis of the underlying saleyard data that is used to create the Eastern Young Cattle Indicator (EYCI) shows that optimism of restockers has been increasing during October as they appear more prepared to pay a premium to secure young cattle. This piece delves a bit deeper into the figures to see if the renewed restocker interest is part of the normal seasonal cycle or if there is something more behind it.

Figure 1 shows the historic movement in the restocker spread to the EYCI, with a lift in the premium percentage spread over October clearly evident. This effectively means that restocker buyers at the saleyard have been prepared to pay more to secure young cattle as the month progressed, indicative of increased buying confidence.

Indeed, the restocker spread has now broken above the 70% range banding for the first time since 2016 and currently sits at levels that have been characteristic of herd rebuild phases in the recent past, such as during 2011 and the 2005 seasons – as identified by the blue circles.

A further breakdown of the restocker figures into the southern and northern regions, with Dubbo as the halfway point, shows a distinct difference in the buying behaviour of northern and southern restockers, even after accounting for the normal seasonal differences in restocker spread activity.

Figure 2 outlines the restocker spread to the EYCI, filtered for southern buyers. Although there has been an increase in the spread from a discount to a premium over October it is still moving broadly in line with the normal seasonal pattern, as identified by the long-term average trend line and currently sits at a 1.4% premium to the EYCI.

In contrast, a look at the northern restocker spread activity over the season shows a significant improvement in the restocker spread during the September/October period. While it is not uncommon to see the northern restocker premium spread to the EYCI widen in the second half of the season the magnitude of the widening, particularly during October has been impressive when compared to the 2016 and longer term average seasonal pattern – figure 3.

Indeed, at a current premium spread of 8.6% the northern restocker spread is one and a half times the seasonal average and has broken above the usual range that is common for this time in the year, as identified by the 70% banding.

See related articles – July Restocker analysis & September Restocker analysis

What does this mean?

The July restocker analysis (see link above) suggested, the dry spell in Winter would see the restocker premium spread to the EYCI fall back to zero, in both the north and south – which occurred during September.

An updated forecast from the Bureau of Meteorology (BOM) pointing to the chance of a La Nina developing into late 2017/early 2018 has prompted the activation of a La Nina watch on the BOM website. The last La Nina event was recorded during the 2010/11 season which coincided with a herd rebuild phase that saw herd numbers rise 6.6% in 2011.

Clearly, the recent northern rains (with areas around Bundaberg reportedly getting up to seven times their monthly average rainfall during October) and the increased chance of a La Nina event on the cards have given northern restockers the confidence boost needed to get them back into the young cattle market in a big way. Let’s see how long it can last.

A solid week despite high SA throughput

Posted on by Caitlin Dearden

The Eastern States Trade Lamb Indicator (ESTLI) took a bit of a breather this week, staging a slight price decline as South Australian lamb throughput is starting to act as a bit of a headwind. The ESTLI off 6¢ on the week to close at 624¢/kg cwt.

Trade lambs were the only Eastern states saleyard category to post a decline this week, and compared to this time last year the ESTLI is still around 10% higher and at pretty comfortable levels for producers with lambs to offload.

Table 1 highlights the performance of the Eastern States sheep and lamb categories both for week on week and year on year figures and there isn’t much red to be seen. Mutton and Restocker lambs the top performers up 5.6% and 4.4%, to 696¢ and 441¢ – respectively.

Figure 1 highlights the recent SA lamb throughput with numbers at the saleyard well above the longer-term average for this time of year and reaching toward last season’s peak with 37,598 head reported, an 80% increase on the previous week’s yarding figures.

In contrast, the Victorian seasonal lamb flush has begun but is yet to get into full swing – figure 2. Lamb throughput is close to the levels set this time last season at just under 69,000 head, which is about 25% above the longer-term average but is yet to record the 100,000 plus numbers we will see once the flush gets underway in earnest.

The week ahead

With lamb prices sitting at levels comfortably above this time last season and the prospect of a surge in Victorian lamb numbers just around the corner it’s probably time we will start to see the ESTLI come under a bit of pressure in the coming weeks.

Next week’s rainfall forecast shows some reasonable falls for Victoria and Tasmania, but not a lot for the remainder of the sheep rearing zones, so that may delay some of the southern flush slightly but it is not far away.

Upside for some

Posted on by Caitlin Dearden

More wet weather this week cut cattle yardings in Queensland, and encouraged restockers to return to the market in NSW.  At a time of year when prices generally fall, or are steady, we saw a further appreciation in the Eastern Young Cattle Indicator (EYCI), but not in all categories.

In general, the cattle market lifted this week. The EYCI continued its rally, gaining a further 13¢ to hit 565.75¢/kg cwt.  The EYCI has now rallied for a month, and gained 12%, now sitting at a 12 week high (figure 1).  The EYCI seems to be heading on a similar trajectory to 2015, although the previous prices trends have been starkly different.

EYCI yardings were a touch weaker in the week ending Wednesday, but are not really abnormal.The 14,698 head yarded this week were down 5% on last week, and 29% on the same week in 2016, and 7% below the five year average (figure 2).

The main movers in price terms which drove the EYCI, were trade steers in Queensland, which gained 18.5% to move back to 559¢/kg cwt. This is just 3¢ shy of trade steers in Victoria and NSW.

Restocker steers in NSW also made a move, likely on a combination of tighter supply and stronger demand.  NSW Restockers paid 11.5% more for the most expensive cattle in the country (according to reported indicators) at 349¢/kg cwt. To be fair Victorian restockers paid the same money.

Over in the west the WYCI continues to hover in the 520-530¢ range. While this is obviously discounted to its eastern counterpart, it’s still a great price for what is generally a strong supply period in WA.

The week ahead

After three wet weeks the rain is expect to abate in NSW and Queensland next week.  This might pick up supply a little as cattle will be able to move, but there might be restockers waiting for them. It’s hard to see prices falling over the coming weeks, but upside is reliant on restocker activity as a lot of the fat for processors and feeders has disappeared with the month long price rally.

A Quick Billion Dollars

Posted on by Caitlin Dearden

We’ve ticked over the billion-dollar milestone for total value of wool sold this year which is something of an achievement. At this point in the season last year the value was 26% lower than it is today despite the cumulative bales sold being just 10% lower.  The wool market hasn’t reached this mark by week 17 since 2002.

The Eastern Market Indicator (EMI) rose 10¢ on the week to 1,578¢ in Australian dollar terms. However, the falling Australian dollar has put some real pressure on the EMI in US dollars. It saw a drop of 13¢ to the week back to 1,218¢. This is a win-win situation, with Australian sellers receiving a higher local price and overseas buyers getting more “wool for their buck”. The Western Market Indicator also supported by the shifting currency by rising 20¢.

Sales were fairly strong across the board, with the real achievers again being in the fine wool category. Wool 19 MPG and finer gained between 35 and 45¢ in the Northern market while similar rises were only received for superfine wool (16.5 MPG) in the Southern Market. Premiums for fine fibres over medium fibres this season have been significant- Figure 1. Prices across the rest of the Merino market were generally positive, rising on average 10 to 20¢.

Crossbred fibres took another hit this week as all buyer interest seems to be mounting on finer fibres. Price reductions were mostly between 20 and 40¢ while the better prepared lines managed to attract a little support.

The skirtings market had another solid week seeing gains of 20 to 50¢. Buyers were particularly happy to pay more for low vegetable matter. Cardings indicators rose 30¢ on average across all three markets.

The response from growers this week was to pass in 3.2% of the offered wool, resulting in 43,473 bales sold. This is a slight retraction on last week but still considerably higher than last year.

The week ahead

47,266 bales are rostered for sale next week across the three selling centres (Figure 2). Melbourne is set for an extra day of sale on Tuesday, while Sydney and Fremantle are operating Wednesday and Thursday as usual.

Keep an eye on the local market

Posted on by Caitlin Dearden

The futures markets are largely quiet, as the northern hemisphere is largely complete for 2017 and seeding progresses for next year. At a local level, it is important to start considering local premiums and how to take advantage of them.

This time of year is always bereft of data to move markets, in this crop calendar (link), it is clear that the year is largely finished for the global wheat crop. The only majors remaining alongside Australia to harvest are Brazil and Argentina.

The lack of strong data, has left the market largely directionless. In figure 1, we can see that spot futures have trended downwards since December became the spot contract. Last night was the first this week to end the day in the green, albeit marginally. In good news, US export sales were up considerably week on week, which will help futures prices if maintained.

At a local level, harvest has begun in the north and it won’t be long until the bulk of farms around the country will be ‘reaping what they have sown’. During October, rainfall has been strong through much of northern NSW and QLD, although not adding much in the way of benefits to the winter crop has added confidence in the summer crop. This has resulted in consumers reducing some of their buying appetite, as they reassess the situation for the coming 6 months.

In recent weeks, prices around Australia have started to depreciate. In figure 2, the APW port price is shown for all zones. Over the past ten days prices have fallen 4% on the east coast and 2% in Kwinana. Basis levels have fallen in recent weeks, however remain at strong levels. The lack of grower selling, in combination with the fact that production & carryout will exceed requirements, increases the likelihood of falling prices/basis.

At these very high basis levels, and low futures prices it is worthwhile examining a long swap/reverse swap strategy which has been outlined in ‘Lock in premiums, keep exposure to the market’.

Next Week/What does this mean?

At present there are considerable premiums available for growers. As growers start to sell the crop, the logic would be for basis to fall.

In order to avoid this, it is worthwhile examining your potential production with a view to commencing your sales program (if not already). This can be carried out through flat price sales or in conjunction with a reverse swap.

 

 

 

Northern rain helps price gain

Posted on by Caitlin Dearden

The Eastern Young Cattle Indicator (EYCI) lifted again this week, recovering a further 3% to see it close at 558.50¢/kg cwt with some good rainfall to much of Queensland providing a bit of a boost. Gains noted too across the East coast for Heavy and Feeder Steers, up 1-2% to round out a reasonably firm performance for cattle markets.

Table 1 outlines the week on week and year on year performance for a selection of cattle prices as at this weeks close, with marginal weekly falls noted for Trade and Medium Steers. Interestingly, a comparison of young cattle prices to finished steers from this time last year shows that the EYCI currently sits 17.8% below where is was last season, while Heavy Steers are just 10.6% softer.

It points to how much optimism was sapped out of restocker buying activity during the Winter dry spell, but that may change if the northern rains continue and NSW starts to get a bit of decent rainfall too. Figure 2 shows the national rain tally over the last week with Queensland the clear beneficiary and next week’s forecast calls for a continuation across much of the north and spreading into NSW which should continue to support demand for young cattle by restockers.

Indeed, our analysis piece released earlier this week took a look at how the October rains may assist prices for the remainder of the year, in a similar fashion to the 2011 season. Click here to recap on the report.

Additional support for young cattle prices is likely to come from a narrowing of the current discount spread of the EYCI to the 90CL beef export price. Given the tightness of supply experienced this year the spread discount wouldn’t be expected to widen much further from current levels – figure 3.

The week ahead

After a recent lift the 90CL is knocking on the door of 600¢/kg CIF again and with the Bureau forecast of a fairly normal November rainfall pattern and a good chance of a slightly wetter than average December all indications are for continued support for young cattle prices in the coming weeks.

 

Exports soaking up extra lambs

Posted on by Caitlin Dearden

Last week we spent a couple of articles looking at the interesting price phenomenon that we are currently seeing in lamb markets.  Strong prices continued last week, in the face of strong supplies, so today we take a look at the export data to see where the extra lamb is going.

Meat & Livestock Australia seem to be having some issues getting slaughter data out of some NSW and Queensland plants, and as such we are currently being denied total weekly slaughter data.  We do know, however, from what we can see in Victoria and SA, and saleyard yardings, is that supply remains stronger than last year.

Prices remain around 600¢ for lambs, which is similar to last year, but it was this week in 2016 that prices started their seasonal dive.

Figure 1 shows that the extra lamb supply we have seen hit the market since June is being soaked up by export markets.  The increase has been diminishing, with September exports sitting 13.4% above last year.  The three month total increase for July to September is 25%.  Interestingly lamb exports for the last three months are not a record, falling just 0.75% behind the levels of 2014.

A simple indication of increased demand is the fact that in 2014 the Eastern States Trade Lamb Indicator (ESTLI) averaged 459¢/kg cwt from July to October.  This year the ESTLI has averaged 604¢/kg, 31% higher.

Pinpointing the source of increased demand is a little difficult.  Lamb exports for July to September were up 38% to the US, 21% to the Middle East and 36% to Asia.  These three destinations have accounted for 83% of lamb exports for the year to date (figure 2), so it’s safe to say demand is up in all our major markets.

It’s also not exchange rates driving stronger demand from export markets.  Figure 3 shows the ESTLI in US dollar terms, and while it’s not at record highs, it hasn’t been this strong at this time of year since the very tight supply of 2011.

We are left with the fact that all our major lamb markets are buying more lamb, and seemingly paying more for it.  This is the key indication of stronger demand.

What does this mean?

We have in the past seen significant jumps in lamb demand from exports markets, and we might now be seeing early indications of the next one.  Significantly larger export volumes, coinciding with similar or stronger prices suggests that consumers in the US, Middle East and Asia have become comfortable with the higher lamb prices seen over the past nine months.

This bodes well for future lamb prices, as increasing supplies are unlikely to push the market as low as it got last year, with a 550¢ floor a possibility.

Lamb markets don’t rally in October – or do they?

Posted on by Caitlin Dearden

Spring in general, and October, in particular, are known for falling lamb prices.  We usually see supply increasing as winter and spring lambs hit the market, pushing all sheep and lamb markets lower.  The price rally this week is particularly unusual.

This week the Eastern States Trade Lamb Indicator (ESTLI) rallied 19¢ to hit a 13 week high of 621¢/kg cwt.  The ESTLI has only traded higher in October over July one other time in the last 10 years.  In 2011 the lamb price trend looked very similar to this year.  There could be a warning in this, as prices declined after Christmas.

There is a key difference in supply between this year and 2011 however. Figure 2 shows that back in 2011 lamb slaughter didn’t really increase from winter lows, hence the steady price.  This year we have seen a solid jump in lamb slaughter, to the point where it is running 10-15% ahead of last year.

We keep saying it, but strong prices, and strong supply mean stronger demand.

After a couple of weeks of intermittent supply data, sheep slaughter has hit 136,925 head (figure 3), the highest level since the end of 2015.  Remarkably, mutton prices also rallied this week, the National Mutton Indicator gained 24¢ to sit back at 397¢/kg cwt.

In the West prices are lagging behind.  Despite gaining 14¢ to 556¢, the WATLI is currently 65¢ behind its east coast counterpart.  The WA Mutton Indicator fell 35¢ to 288¢.  This is not as low as a fortnight ago, but still the cheapest sheepmeat in the country.

The week ahead

When prices rise like lambs did this week, it’s an indication that buyers are looking for more lambs. Its likely restockers are helping drive the market, with NSW rainfall this week being widespread.  Whether higher prices are enough to draw more lambs to the market while it’s raining is yet to be seen, but we do know that growers who sell lambs in October have never had it so good.