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Fine fibres intimidating the rest of the market

Posted on by Caitlin Dearden

Wool was the hot topic of industry conversation again this week but it wasn’t enough to distract the market from deciding on what fibres it wants to support. Results were particularly mixed with fine fibres attracting premiums whilst the rest of the categories felt losses.

Overall, the market indicators held reasonably still considering there were very mixed results between categories. The Eastern Market Indicator (EMI) improved slightly on last week, gaining 2¢ to 1,568¢ in Aus$, while in US$ terms it rose 7¢ (figure 1). Western Australia fared worse off with the Western Market Indicator (WMI) falling 7¢ to 1,614¢.

There was a distinct preference split between fibre categories across the country this week. The total market has been moving in sync for much of the last few months so this divergence could be a return to greater differentiation between the activity of wool types. Finer fibres of 19 microns and under all received price gains on last week, up to 45¢. Buyers were clearly chasing the finer microns as reflected in the solid trend of the finer the micron the increase in price gains to the week.

On the other hand, medium to coarse wools of 19.5 to 23 MPG weren’t as readily sought after. Prices fell on average 20 to 30 ¢ by the weeks close. Crossbred wool followed the lead of the medium to coarse Merino fibres, losing ground across the board. The harshest fall was in 28 MPG at an average drop of 30¢ in both Fremantle and Sydney markets.

Again, the finer fleece led by example to the skirtings and cardings market. Improvements were on average 20 to 35¢ for cardings indicators and generally ranged from 30 to 60 cents for skirtings. .

45,792 bales were traded this week, with a pass-in rate of 6%. We’re still seeing the offering at much higher levels compared to this time last year (up 11.8% for week 16 this year), reflecting the performance of this season.

The week ahead

The number of bales on offer next week is expected to drop down to a listing of 43,764 for the three selling centres over Wednesday and Thursday (figure 2). The focus on micron this week might be an indication of where the market is starting to move to. Some strong forward prices in the 18.5 and 19 micron wools where buyers were willing to pay a premium out to next year suggest that preference for the finer wool is likely to grow.

ABARES tell us what we know USDA surprise

Posted on by Caitlin Dearden

The Australian Bureau of Agricultural Resource Economics and Sciences (ABARES) made an interesting move this week, warning of crop downgrades.  Meanwhile the United States Department of Agriculture (USDA) made their monthly predictions.

ABARES don’t often flag what they are going to say in their reports, but this yesterday they put out a release telling us what we already know.  Growing conditions have not been great in NSW, and there is likely to be some yield downgrades, but they also noted that recent rain may have saved some crops in the Riverina and Central cropping zones.

This news was picked up in international markets, but like here, it has been widely reported and didn’t have much impact on markets.

The World Agricultural Supply and Demand Estimates (WASDE) from the USDA did move the market however.  Figure 1 shows the changes from September, with the headline figures being the downgrade in Oilseed stocks, and the upgrade in wheat stocks.

The USDA predicted lower yields for soybean crops being harvested now, and this wiped half a million tonnes off US production.  The market was expecting an increase, and the report saw soybean prices jump 2.4% higher.  Unfortunately for Australian growers this didn’t really translate into higher prices, with ICE Canola up just $2 to $CA502.6/t for January 18.

Global wheat production was lifted 5.3mmt thanks to improving production in the EU and India.  The USDA did downgrade the Australian crop by 1mmt to 21.5mmt.  Figure 2 shows we are still well and truly on track for a record carryout for 17/18.

The week ahead

Wheat prices in Chicago lost a few cents last night, but the AUD was up so swaps will be a bit weaker today.  Domestic basis is driving most of the change in price at the moment, and recent rain has seen it weaken, especially in southern states.  Sellers will obviously be more confident of production now.

Historically October marks the seasonal low for corn and soybean prices, so we might find some support for international markets over the coming months, translating into better prices here.

Cattle rally continues

Posted on by Caitlin Dearden

There was a significant jump in yardings this week, but this failed to dampen cattle prices, which continued to rally.  In fact, it seems to be rain that is doing the opposite of dampening prices, with prices finding strength, almost across the board.

Figure 1 shows a 61% lift in east coast cattle yardings, but this still remains below the very strong levels of September.  In fact, the lift in yardings is likely to be more due to the public holiday in the previous week, with a bit of a backlog of cattle hitting the market now. Yardings this week of 40,044 head on the east coast were however well below the five year average.

This suggests that producers are holding back cattle in response to recent rain.  For October so far, rainfall has ranged from ‘a start’ to very useful across the east coast.  It will be interesting to see if yardings remain low, figure 1 shows that on average, and last year, yardings tend to jump in the third week of October.

The Eastern Young Cattle Indicator (EYCI) continued to rally, but the pace slowed.  The EYCI gained 8¢ this week, to lift it to the levels of five weeks ago, at 541.25¢/kg cwt (Figure 2).

Heavy Steer prices managed to break back through 500¢ in NSW (507) and Victoria (518), but somehow managed to slip below those levels in Queensland (492¢).  Perhaps there are still a few of the record numbers of grainfed cattle coming to the market.

The weakening Australian dollar managed to give beef export prices a small lift.  The 90CL Frozen Cow gained 3¢ to 594¢/kg cwt which just moves our target prices a little higher if the rain continues.

The week ahead

There has been widespread rain over the last 12 days, with parts of Queensland by far outstripping the monthly average.  The forecast says there is more to come for at least half of Queensland (figure 3), and this suggests that there is only one way for cattle prices to go next week, especially young cattle prices.

Sheep meat demand forecasts

Posted on by Caitlin Dearden

Key points:

  • Forecast global market share for Australian sheep meat exports are anticipated to increase into the next decade and outperform NZ exports.
  • Global sheepmeat consumption is forecast to increase, particularly from developing nations.
  • Increased demand for sheepmeat imports is anticipated from some of Australia’s key red meat importing nations over the next five years.

In our analysis piece earlier this week Angus pointed out that the recent period of high supply and firm prices point to stronger demand for Australian sheepmeat. This article takes a look at the OECD forecast for global sheepmeat consumption and demand out to 2026 to see where the opportunities exist for continued growth in demand for sheepmeat.  

Read the earlier analysis here.

It is important to not that the OECD data provided by the United Nations Food and Agriculture Organization (FAO) includes goat as part of the global sheepmeat trade. Nevertheless, figure 1 highlights how large a share the combined New Zealand and Australian sheepmeat exports make up of total global exports, sitting reasonably stable at around 70% for much of the last decade.

The decline in the market share of NZ exports as a proportion of the total world exports since the early 1990s is reasonably evident, moving from 45% to 35% over the last three decades. Importantly, anticipated increases in production and exports in Australia over the next decade will see us wrestle a greater degree of market share away from NZ, such that by 2026 Australia will hold 36.9% of the global trade compared to New Zealand’s 33.6%.

Turning to global consumption levels we can see that the majority of growth has been, and is expected to continue, coming predominantly from the developing world – figure 2. While sheepmeat consumption levels can be satisfied partially by domestic production the fact remains that for many countries their consumption will outweigh their production and the need to import sheepmeat will be required to satisfy the demand. This is important, particularly in relation to non-goat sheepmeat as the only two significant global exporters of sheep and lamb product are NZ and Australia.

Figure 3 outlines the FAO forecast annual growth in sheepmeat imports by geographic region for the next five years and it shows significant growth in demand forecast for Africa, although from an Australian and NZ sheepmeat producer perspective this isn’t the key focus as much of this will be for goat. What is significant is the growth levels forecast for the Asian region. Although the year on year increases in growth are lower than Africa, Asia accounts for around 65% of the total global sheepmeat imports each year so the volumes going there are significant.

What does this mean?

Further analysis of the breakdown of the forecast Asian sheepmeat import flows shows that much of the growth is anticipated to come from China, Malaysia, Saudi Arabia, Indonesia, and Vietnam. These are already key export destinations for our red meat products and strong trade ties already exist between Australia and these nations.

Given the forecast decline in market share for NZ sheepmeat exports, it places Australia in the prime position to capitalise on a growing population and burgeoning middle class in these nations and points to robust demand and relatively firm sheepmeat prices for years to come.

No black Friday for lamb and sheep

Posted on by Caitlin Dearden

Despite the beginnings of Spring flush being fairly evident at the saleyard this week, prices managed to gain across all categories of national lamb and sheep markets. Seemingly, a Friday the 13th close to the week a lucky one for ovines.   

The Eastern States Trade Lamb Indicator (ESTLI) gaining 1% to close at 608¢/kg cwt, while some fairly erratic mutton prices out of NSW over the last fortnight assist the National Mutton Indicator up 10.3% on the week to close at 386¢/kg cwt – figure 1.

National lamb saleyard indicators posting some decent gains too with Restocker Lambs up 5.5% to $103 per head and Light Lambs 6.2% higher to see them back above $6. Price rises were evident pretty much across the board for Victorian, NSW and SA state saleyard categories with NSW Merino Lambs the only category across those three states to see a price fall this week, and a marginal one at that, down just 1.9% to 523¢/kg cwt.

The firm prices were unable to be weighed down by increased volumes at the saleyard along the East Coast for both lamb and mutton with throughput levels up 2.1% and 28.5%, respectively. The lamb yarding pattern for SA and Victoria continuing to show evidence that the seasonal Spring flush is underway with both states continuing to trend above the 2016 trend, and higher than the long term average for this time of the year – figures 2 and 3.

The week ahead

The BOM rainfall forecast for the next week showing reasonably good coverage across all of the East Coast and a bit of a light sprinkling for SA and WA. This will continue to provide some support to lamb and sheep prices in the short term, although the spectre of increased supply as the Spring flush gains momentum should act as a bit of a headwind. Prices most likely to consolidate in the near term; have a safe and lucky Friday the 13th.

Wool market keeps on improving

Posted on by Caitlin Dearden

The continued good news regarding the wool market is providing a positive setting for wool producers; with some now locking in prices for future clips and making decisions to expand production. A quick look at relative prices shows the EMI is 248 cents higher year-on-year, while in US$ terms it is up 231 cents.

The Eastern Market Indicator for the week lifted another 16 cents to close at 1,566 cents in A$ terms, while in US$ terms it rose 11 cents to 1,224.  The market in the west also improved, gaining 13 cents to close at 1621 cents.

This week the market opened strongly on Wednesday then settled into a “firm” trend resulting in a good result for sellers; and they responded by only Passing-in 3.3% of the 38,103 bales offered- well below the season average of 7.3%.

Crossbred wool again was unable to follow the lead of the Merino section, losing ground across the board, with the only exception being the limited 32 MPG offering which held steady.

A note from AWEX this week points out that the poorly prepared X Bred clips were the most affected and struggled to attract competition. This is a salient reminder, when demand weakens the focus of buyers shifts to the better lots; in a strong market, the case is often that poorer lots are well supported as buyer’s scramble for supply.

It was also observed that the Skirtings market is feeling the effects of a strong Merino fleece wool market with most types improving 20 to 40 cents for the week.

The scramble for “low mid break” lots resulted in these types at times posting extreme prices. AWEX report that up to 70 cent premiums are evident for wool with the “right” specifications. This is a response to the normal seasonal increase in high Mid Break lots coming forward, as reported by Mecardo this week.

Cardings are also tracking along nicely, and while yet to reach the 1200 cent peak of May, they are well entrenched above 1,100 cents, mainly due to the limited supply.

The week ahead

A total of 46,512 bales are listed for sale next week across the three selling centres over 2 days. This is consistent for the next three weeks roster with around 40,000 predicted each week to be offered.

As stated last week, “the surge in the market is enticing, and again shows the resilience of the wool market now”. Despite an increasing offering that is normal as Spring shearing clips arrive, it is difficult to see anything but positive times (at least in the short term) for wool.

 

An Indian Summer

Posted on by Caitlin Dearden

Futures markets edged lower this week, but were balanced by a fall in the Aussie dollar. In this week’s comment, we look at rumours of increased import duties in India, and local premiums over Chicago futures.

The futures market lost strength over the past week, with a week on week change of 11.5¢/bu (figure 1) or approximately A$5.4/mt. There hasn’t been much in the way of fresh information in recent weeks to drastically move the markets.  The A$, has also fallen to 77¢, from 80¢ this time a month ago, provided some comfort to pricing.

There are rumours that India will increase import duties from 10% to 20-25% in the coming weeks. The Indian government are likely to introduce to an increased wheat import duty in order to encourage local producers to plant wheat, by making foreign wheat more expensive. India is very much an on-off importer (figure 2), and in recent years has become more important, however as we can see in figure 2, they often switch between an exporting and importing nation. It must be said that as the Indian economy grows, along with an expanding population that imports are liable to swell.

At a local level, we have seen some rain around the country. I am sceptical at this point that it will be beneficial in northern NSW & QLD, however will help the Victorian crop. At present basis levels continue to stay strong due to the domestic demand, and in Port Kembla premiums over Chicago futures continue to remain at historically high levels (figure 3). The question remains, how long will these premiums remain. In Australia around 8-9mmt of wheat is required domestically, even though this is a poor production year we will have more than enough to meet requirements especially when we consider carryover from last season.

There are very few growers who have forward sold for the coming harvest, it is advisable to consider selling a small parcel, as these levels are attractive. If it turns out to be the worst price you receive for the season, then it is still a good number.

Next Week/What does this mean?

The WASDE report is due on the 12th, however it is hard to see much in the way of surprises. I would expect Australia to be downgraded from 22.5mmt to 20-21mmt.

It is likely that an official announcement on wheat import duties into India will be announced in the next week.

NSW Sheep dive off a cliff and about to get wet

Posted on by Caitlin Dearden

Lamb prices have defied the odds to remain relatively steady for the fifth week straight.  It’s highly unusual for prices to trade in such a narrow range for so long, and there is no doubt they will break out at some stage.  Mutton prices haven’t had the same luxury, continuing to slide this week in spite of weather forecasts.

It’s been a strange week for mutton markets.  We must point out that Monday was a public holiday in NSW, which might have thrown indicators out a bit, but shouldn’t have accounted for the Mutton Indicator falling off a cliff.

Figure 1 shows NSW Mutton has gone from similar to last year’s levels, to just below the five year average, at 264¢/kg cwt.  NSW mutton is now half the price it was in early June.

The decline in mutton prices was not confined to NSW, in SA we saw a 93¢ decline to 265¢/kg cwt.  In Victoria mutton values were steady, gaining 3¢ to 373¢/kg cwt.  So either NSW and SA prices are way out of whack, or Victoria’s are, and normal trade flows will see prices converge in some way or another.

The Eastern States Trade Lamb Indicator (ESTLI) has defied downward pressure from mutton, and remained steady at 602¢/kg cwt.  The ESTLI has traded between 597¢ and 607¢ for five weeks and between 574 and 633¢ since the start of July.

It was the second week in October when the ESTLI fell off the cliff last year, and the weakening mutton values don’t paint a great picture for lamb over the coming weeks.

The week ahead

Figure 3 might see a bounce in mutton prices after this week’s fall.  A reasonably large proportion of the NSW sheep population will get pretty wet over the coming 8 days, while things will keep ticking along in Victoria.  It’s hard to see lamb values maintaining these values indefinitely, so if lambs are up to trade weight, the time to sell at 600¢ is running out.

ABARES forecasting record lamb prices

Posted on by Caitlin Dearden

The Australian Bureau of Agricultural and Resource Economics (ABARES) have put out their quarterly Agricultural Commodities Report, and amongst the numbers there were some interesting sheep and lamb forecasts.  This week we take a look at whether lamb prices can achieve another year on year increase, as predicted by ABARES.

We’ll get to the price forecasts, but first some interesting supply numbers.  ABARES are producing financial year forecasts, which are not directly compatible with Meat and Livestock Australia’s (MLA) calendar year forecasts, but the differences are interesting.

ABARES are expecting a solid jump in the sheep flock this financial year, with the June 30 2018 flock pegged at 73.2 million head.  A flock of just above 73 million head would be a 3.2% increase on the June 2017 numbers, on the back of a 5% increase over the last year (figure 1).

MLA are forecasting a sheep flock of just 68 million head at the end of 2017 and 71 million for the end of 2018, so ABARES are much more bullish on the flock rebuild, forecasting a flock around 2 million head higher, and at a five year high.

ABARES expect the stronger flock to translate into stronger lamb slaughter.  Figure 1 shows that 2016-17 slaughter was at a three year low, but is expected to increase 2%, to almost match the 2014-15 lamb slaughter number.

Normally a forecast of a larger flock, and higher slaughter, would be accompanied by a lower price forecast.  ABARES are actually expecting lamb prices to rise, with the average for 17/18 to post a 5.6% increase to set a new record high of 625¢/kg cwt.

Figure 2 shows how lamb slaughter and financial year average prices have been related over recent years.  Demand has been increasing regularly, but the 16-17 price rise was due to tighter supply, not increased demand.

If ABARES slaughter forecast is correct, we’ll have to see demand increase to reach an annual average of 625¢/kg cwt.  Back in 14-15, when lamb slaughter was similar to that forecast for the coming year, prices were back at 518¢/kg cwt.

Key points:

  • ABARES quarterly commodity report is forecasting a five year high flock and increased slaughter rates.
  • The report also forecast a rise in lamb prices, despite higher supply.
  • An annual average of 625¢ would see highs over 700¢, and lows at around 550¢.

What does this mean?

If lamb prices average 625¢ in 2017-18 it will be a great year for lamb growers.  Normally the Eastern States Trade Lamb Indicator (ESTLI) ranges around 75¢ around the average. The ABARES forecast would see the ESTLI reach highs of 700¢, and lows of 550¢, which is great money during the peak supply period.

Unfortunately we think the ABARES forecast might be a bit strong, and prices might average a bit lower.  We have however seen solid price resilience so far this spring in the face of increasing slaughter, so perhaps demand is stronger. Though it’s unlikely to be strong enough to counteract the higher slaughter rates forecast by ABARES.

Rain, supply and export prices provide a boost.

Posted on by Caitlin Dearden

The Mecardo team have been suggesting a price bounce was imminent for the last few weeks given the rainfall forecast, recovery in export prices and falling supply at the saleyards. But as the old trading adage goes, “even a broken clock gets it right twice a day” so we won’t puff out our chests too much on this one.

Figure 1 shows the rainfall for the week with much of Southern Queensland getting some reasonable action. This, along with the forecast of some further falls expected for NSW into October (according to the most recent BOM outlook), has given a bit of a boost to optimism here for producers and both NSW and Queensland responded this week with significant decreases to yardings.

Queensland cattle yardings were down 50% on the week, while NSW saw a 58% decline in numbers at the saleyard. This reduction in supply helping to push the weekly East coast yarding figure to the lowest it has been all season at just 24,818 head recorded – figure 2. This throughput measure is well below the normal range and sits 53% below the five-year average for this time of the season.

The decreased supply also evident in young cattle numbers with EYCI yardings also registering its lowest average weekly figures since September 2016 at just 9,537 head. Indeed, EYCI cattle throughput has fallen 50% over the last month and the reduced supply has given some support to prices this week. The EYCI recovering 5.4% to close at 533¢/kg cwt. The young cattle price boost was not limited to the East coast alone with the WYCI up a similar magnitude, staging a 5.8% increase to 558¢ – figure 3.

The week ahead

The recovery in the 90CL beef export price over the last few weeks signalled that young cattle prices were getting a bit undervalued; and all it took was a bit of rain and tightening supply to see the market find a base. The 90CL now sits at 589¢/kg CIF and reports out of the US indicate that both domestic and export demand is strong and feeding into higher grinding prices.

The prospect of steady to firmer export prices in the coming weeks and a better weather outlook for much of NSW should see cattle prices continue to be supported locally.