The “steady as she goes” reports on the wool market activity over recent weeks were thrown out the door at this week’s 2 day wool sale, with the market lifting significantly led by the Merino and including Cardings sections.
The Eastern Market Indicator for the week lifted 28 cents to close at 1,550 cents in A$ terms, while in US$ terms it rose 23 cents to 1,214. The market in the west also had a strong positive lift, improving 38 cents to close at 1570 cents.
Crossbred wool bucked the trend with a disappointing week where falls of 10 to 20 cents were evident.
For the calendar year, the EMI has averaged in A$ 1506 cents, and in US$ 1153, so the current market good be referenced as a “Spring rally”.
As has been regularly reported by AWEX, wool with good specifications is attracting strong competition, and at times significant premiums, however when the market surges like it has this week the lesser quality wool also benefits. This was the case this week. The general MPG indicators in the Merino types all showed improvements of 20 – 60 cents, with only the limited superfine offering in Melbourne the exception.
This reinforces the case for active marketing of all types, but especially those types that exhibit faults or have lesser additional measurements. In this environment of tight supply, the risk of holding lines of wool that don’t meet the broker price expectation (passing-in lots) are not as great as usual; that is, reserving some of the lots offered for auction is an even sounder strategy than normal with the current market situation.
Last week Mecardo reported that the usual season pattern for the wool market in the Spring is negative, and the current move contrary to the norm. Does this reflect a new order for the wool market caused by tight supply, or is the market likely to revert and mirror previous seasons?
Whatever the future, one other point needs to be made regarding these sudden market moves. The best time to get the forward prices is always on an auction rally. This is most effectively achieved by having the wool broker place Good Till Cancelled (GTC) orders in the forward market for a portion of the future clip.
A total of 38,217 bales were cleared to the trade this week, with the pass-in rate of 3.6% was well below the season average of 7.6%.
The week ahead
A total of 9,716 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.
The surge in the market is enticing, and again shows the resilience of the wool market at this time. Again, barring and currency appreciation next week will again be a good week to be offering wool.
The US Climate Prediction Centre, is currently on La Niña watch with an increased likelihood of the little sister to El Niño occurring before the end of the year, and into 2018. This can have very positive results for Australian grain growers, in this analysis we look at how we may benefit. 
In figure 1, we see the year-on-year impact of El Niño split into east coast and west coast. In the period 1960-2015, 7 of 11 El Niño years have recorded a reduction in wheat production, with 6 of these years recording a > 20% reduction. In Western Australia the impact of El Niño has been less negative, with 6 out 11 event years recording an increase. However, only two of these years record > 20% increase. In addition, during the years of production decline, 3 of these years recorded large production falls of > 20%.
At present, the market is not yet overly concerned with La Niña. However, it does have the potential to impact greatly on the US crop through drier weather and eastern Australia through wetter than average conditions. If La Niña starts to impact on the US crop production, then we are likely to see risk premiums emerge in US futures markets, which will flow on to our own prices.
It was only in mid-July that the Eastern Young Cattle Indicator (EYCI) broke through 600¢. The downward spiral now has the EYCI looking down the barrel of a number with a four in the front. There has finally been some positive news on the climatic front, however, which could and should provide some support, if it eventuates.
It was feeder steers which managed to defy the trend this week, gaining 8 and 7¢ in NSW and Victoria respectively, to move back to 286 and 283¢/kg lwt. It was trade steers that drove the EYCI lower.
The country sits on tender hooks, as we come to the end of September. The forecasts for the crop from ABARES and USDA seem to be wholly optimistic, and will see severe downward revisions after a terrible month for much of the growing regions.
The A$, although still high compared to the last year has dropped back below 79¢, helping the local price. In the past month we have seen iron ore futures (figure 3), start to slip which put pressure on the A$. As China drops demand after an intensive import program over the past few months will we see a further slide back down to 75¢
Fairly erratic moves to the state mutton prices this week but they all evened each other out to see the National Mutton Indicator just 3¢ softer to 370¢/kg cwt. Marginal prices changes the order of the week it seems with the Eastern States Trade Lamb Indicator continuing to dance around the $6 area, posting a 5¢ gain to close at 603¢/kg cwt.
East coast lamb throughput showing a similar story to sheep throughput with yardings remaining above the 70% range and quite elevated for this time of the year – figure 2. The high sheep throughput being held up by above average numbers at saleyards mainly centred in NSW. The lamb throughput supported by NSW and Victorian flows, the only two states with yarding figures trekking above average for this time of the season.
The recent Victorian lamb yarding pattern suggest the beginning of the Spring flush is underway which is likely to start to see some price pressures for the ESTLI in the coming weeks. Although, the updated Bureau of Meteorology rainfall outlook for October (figure 3) signals a move to a much wetter NSW which will provide some welcome relief to producers there and price support on dips.
An overall satisfactory wool sale result this week, however we need to acknowledge that the weaker A$ played a part. Last week the A$ touched out at US$0.80, whereas this week it closed at US$0.782. Causes for currency moves are varied and debatable, and we can’t be sure if the weakness in the A$ is anticipating a Tigers/Crows win or loss in the AFL; or perhaps it is due to the struggle NSW NRL fans are having coming to terms with a Cowboys/Storm final?
A key point of interest in the wool market is the fine wool price, including the fine wool price relative to medium wool.
Of course, this leads to comparisons of relative price levels. Figure 2 shows the basis or spread between the 18 & 21 MPG’s for the Southern selling region. Currently the 18 over 21 MPG premium is sitting nicely at 554, having briefly touched the high level of over 700 cents in March this year.
The market looks remarkably stable at present, and providing we don’t see a sudden surge in the A$ this should translate into another good week to be selling (that is providing the footy community can cope with an all Victorian result!!!)
Local and international wheat markets continued to edge higher this week. Local markets are still trying to get a grip on where the crop will end up, as it shrinks by the day. The international market remains awash with wheat, but a rising rouble gave unlikely support. 
Locally the dry spell in NSW continues to run down the potential crop, with prices responding accordingly. ASX East Coast wheat, which we must remember is now deliverable in Victoria, was quoted at $283/t yesterday, up around $10 for the week. Interestingly Geelong continued to lag a bit, although it was up around $14 for the week to $274/t (figure 2).
Canola values are also at a premium in the northern cropping zones, but not as much as you would think. Newcastle Canola is priced around $550, with Geelong just $15 behind, at $535/t. It’s hard to see much canola being produced in NSW, but there might have been enough carry over from last year to satisfy local crushers.
The headline Eastern Young Cattle Indicator (EYCI) finished softer again this week, but not before staging a slight gain off the mid-week low of 513.50¢/kg cwt as saleyard throughput numbers decline in the face of the lower prices.
On Thursday, I will be presenting to the Crop Science Society of South Australia on the topic of GM crops, and the markets associated with them. I thought this was therefore an opportune time to look at the GM moratorium, and whether the promised premiums are available.
The South Australian government may point to a knock-on effect where other commodities are receiving a boost. In that case, we thought it was worthwhile checking how strong the premium for cattle and lamb had been due to being from a GM free state.
The South Australian ban on GM cultivation is providing little if no extra premium to prices of livestock and canola. There may be premiums in other sectors such as the seafood and wine industry, however this is of little comfort to canola producers.
The lamb market is throwing up some interesting data at the moment. Meat and Livestock Australia’s (MLA) weekly slaughter data is telling us lamb slaughter is at a record for this time of year, yet prices remain historically strong.
In 2014 rising lamb supplies saw prices fall heavily in August, and stay there until December. Apart from prices easing from extreme highs in June, we still haven’t really seen prices deteriorate in response to stronger supply.
In the last few years the 400,000 head mark has been the trigger point for heavy falls in prices. Lamb slaughter appears to be headed that way, but could just as easily track sideways for a month or so. Does this this mean prices will also track sideways? It’s hard to say, but demand appears to be very resilient.