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It seems there was plenty of slaughter capacity which wasn’t being used last year. Despite the Thomas Foods fire taking out 55,000 head of capacity per week, sheep and lamb slaughter runs well above last year’s levels. Prices are responding accordingly.

What you normally see is if lamb slaughter is higher, sheep slaughter is lower, and vice versa. However, what we are seeing at the moment is that despite plenty of capacity being taken out, both sheep and lamb slaughter is stronger than last year.

At the end of last week east coast lamb slaughter was 7% higher than last year. Sheep slaughter was 43% higher than last year. In total there were 64,000 head more sheep and lambs slaughtered last week than the same week last year (figure 1). This was a 14.6% increase, and it seems to be driven by a dry summer in Victoria, South Australia and Western NSW. As outlined last week, the extra stock are being slaughtered in NSW and Victoria.

Yardings were steady this week, but don’t be surprised to see slaughter at least as strong as recent times.  It’s hard to see supply being tighter when the Eastern States Trade Lamb Indicator (ESTLI) has fallen below 600¢ for the first time since October.

Mutton prices didn’t suffer as much this week, easing 5¢ on the east coast to 405¢/kg cwt, and gaining ground to 416¢ in the west.

While on the west, they had the most expensive lambs in the country this week. The WA Trade Lamb Indicator was at 625¢/kg cwt this week.

The week ahead

There is no rain on the way, but we are in for a series of short weeks. What this does to the market is debateable, but in general you’d expect lower kills to see prices weaken further, or at least struggle to rise.  The good news is the heavy kills we are seeing now means that there will be fewer lambs later, and this means higher prices. We might have to wait for some rain before any serious rally eventuates however.

Earlier this week the first forward contract prices for lambs and mutton for the April to July period were released.  While there were few surprises on the pricing front, it’s worth taking a look at the values, and how they compare to historical price movements, and where prices were last year.

Thomas Foods International has plants in South Australia and Tamworth, and this week put out extensive forwarding pricing grids in an effort to secure supply for autumn and winter for both locations.

The forward contracts are available from April to the end of July, with prices for cross bred and merino lambs, and mutton.  The contract values are 10¢ higher for delivery to Tamworth for lambs, but are the same for mutton.

Figure 1 shows the Eastern States Trade Lamb Indicator (ESTLI), along with the forward contract prices for Tamworth.  Remember, Lobethal is 10¢ lower.  Forward prices for cross bred lambs have been pitched at the lower end of the range of 2017 saleyard prices.

There is some incentive for growers, with price starting in April at a small premium to current values, and increasing by 10¢ per month thereafter.  Figure 1 shows that the average price rise from March is stronger than that predicted by the forward prices.

For Merino lambs the contracts are largely priced at stronger levels than 2017 saleyard prices at Tamworth (figure 2). However, they are 20¢ lower at Lobethal from May, which puts them at similar pricing to last year.  In terms of trends, the merino lamb contracts are priced at a better premium to current levels, but don’t match the average rise we normally see into June.

While the lamb contracts look ok relative to last year, the mutton contracts look decidedly cheap.  Figure 3 shows forward contracts tracking 60-100¢ lower than the same time in 2017.  It should be noted that the price shown on figure 3 are for Merino Ewes.  Merino wethers are 20¢ stronger, and crossbred ewes 20¢ lower.  Still, the forward contracts only really offer current values, plus a bit more in the winter.

What does it mean/next week?

If feed is cheap, ie grass, the forward lamb contracts offer good value for those looking to buy, or hold store lambs for sale later in the autumn or in winter.  If feeding a full ration, some careful calculations need to be done to assess whether it might be better to sell now.

For sheep the forward contracts look a little cheap given usual seasonal trends of tightening supply, and improving prices thought the autumn.  There is a risk of a failed autumn break in southern NSW, Victoria and South Australia, which would make current prices look attractive, so a bit depends on your views on the weather.

Key Points

• Forward contracts for lamb and sheep have been released this week with prices at a premium to current levels.
• For cross bred lambs forward contracts offer reasonable value, and good value for merinos.
• Forward sheep contract look a bit cheap given usual seasonal trends, and last years prices.

A solid market given a slightly increased offering was the tone for this week, although the Au$ falling against the Greenback (US$) was the principle reason for a generally stronger market.

This resulted in a number of key indices setting new record levels again. Prominent was the 21 & 22 MPG indicators in the south, lifting 30 & 50 cents respectively.

For consecutive weeks the most significant factor was the Au$; by the end of the week it was quoted down a further US$0.007, sitting comfortably below US$0.78. This assisted the Eastern Market Indicator (EMI) to rally by $0.10 for the week to close at 1830¢. As well, the Western Market Indicator (WMI) also improved 10 cents to finish at 1895 cents. For the week, the EMI in US$ terms fell 5 cents.

The market opened strongly on Wednesday where the EMI reached a new record level of 1834 cents, hurdling the previous high of 1822 cents with ease. On Thursday it gave back a little ground, however overall a strong week for the wool market.

Skirtings had a mixed week in line with fleece types; better measured types attracted at times strong competition while high VM pieces had irregular demand.

X Bred types also had a varied week, 30 & 32 MPG was cheaper, while 25 to 28 MPG generally dearer, although not by a lot. Cardings again lost ground, although in Melbourne AWEX quoted slightly firmer.

As previously reported, it is usual at this time of year for the supply of wool with high mid breaks to grow. This is resulting in an increase in the discount for these types, at times 80 to 100 cent deductions compared to the corresponding low mid break types.

Of the 44,150 bales originally offered, 41,227 sold with a Pass-in rate of 6.6% or almost 3,000 bales.

To date this season, the average bales sold to the trade per week has been 42,000, compared to 38,200 for last season. There is concern about supply going forward, with a question mark over the capacity for this season to remain above 2016-17. The next few weeks will confirm this one way or another.

The week ahead

Sales are scheduled for all three centres next week with Melbourne conducting a 3-day sale on Tuesday, Wednesday & Thursday. Fremantle & Sydney have a 2-day roster.

A total of 46,490 bales are rostered for next week, almost 2,000 more than this week’s offering; the roster drops away over the following 2 weeks with an average of 41,500 anticipated.

The trend in lamb and sheep slaughter figures this season show pretty clearly that the neighbouring states are picking up the added workload stemming from the Murray Bridge fire out of South Australia. Victorian and NSW lamb and sheep slaughter is trekking well above seasonal average levels and those recorded last season for the week ending 23^rd February, while the opposite is true for South Australia.

Despite Victorian lamb slaughter sitting 21% above the five-year seasonal average, as shown in Figure 1, the total east coast slaughter is only 3% higher for the season with nearly 376,000 head processed in the previous week. In contrast, current SA lamb slaughter is trekking 29% under the seasonal average level for this time of the year.

A similar story for mutton, with NSW slaughter volumes 33% above the seasonal average – Figure 2, while SA mutton slaughter is currently 44% below the average seasonal pattern. The broader East coast mutton slaughter somewhat reflective of the flock rebuild phase with levels trending 11% under the longer-term average but 35% higher than this time last year – Figure 3. East coast slaughter moved slightly higher over February compared to the 2016 pattern as the forecast wetter February period failed to fully materialise.

There was some relief for the last week of February with some reasonable falls across much of the eastern side of NSW and in WA. This provided a bit of a lift to East coast mutton prices, up 7% on the week to close back above 410¢/kg cwt. East coast lamb categories ended the week with flat to small gains (see Table 1.), the benchmark Eastern States Trade Lamb Indicator (ESTLI) up a fraction to close at 624¢/kg cwt.

What does it mean/next week?:

Some very solid rainfall is forecast for Queensland in the coming seven days, but not a lot will make its way further south. Indeed, much of the nation’s prime sheep rearing country will miss out. As Table 1. highlights, most categories of lamb and sheep prices are not too far away from levels seen this time last year. With prices this robust from a historical perspective and nothing much in the way of rain on the horizon as we head into Autumn prices are likely to ease slightly into the coming week.

Across the board the Australian wool market Micron Price Guides (MPG’s) were all quoted higher, the only exception on the AWEX Wool Market Report was the Cardings indicators.

The MPG Indicators however failed to provide the whole picture; underneath the headline report is a more complex story.

The most significant factor in this week’s market was the Au$; by the end of the week it was quoted down US$0.013, sitting below US$0.78 for the first time in 2018. As a consequence, the Eastern Market Indicator (EMI) rallied by $0.08 for the week to close at 1820¢. This picked up all the fall of last week. As well, the Western Market Indicator (WMI) improved 16 cents to finish at 1895 cents.

To complete the currency story and its influence on this week’s market, the EMI in US$ terms fell 17 cents, this meant a cheaper week on week for buyers, and better prices for wool sellers thanks to an easing Au$.

There is another underlying story, at this time of the year there is more “faulty” wool on offer. Lots with higher VM have been steadily increasing, which results in these types receiving erratic competition. There is another side to this story, and that is that FNF types (wool with less than 1% VM), are increasingly difficult for buyers to source and at times extreme prices are bid for particular lots.

The issue of quality has also permeated into the X Bred section of the market. In the past couple of years, it has been the trend to spend less time preparing X Bred wool in the wool shed, with some producers electing to either not skirt or minimal skirt in their wool preparation. When the market is buoyant or under tight supply this preparation model has little impact on prices, however, when the demand softens or supply increases (both currently the situation with X Bred wool), buyers can overlook less prepared types. This is the case now. Buyers can fil orders with “traditionally” prepared wool; poorly prepared lots are then used as bargain buys to cheapen orders.

Of the 41,815 bales originally offered, 39,429 sold with a Pass-in rate of 5.4% or just 2,240 bales.

The week ahead

Sales are scheduled for all three centres next week on Wednesday & Thursday.

A total of 44,506 bales are rostered for next week, slightly more than this week’s offering; the roster drops away over the following 2 weeks with 41,500 and 39,100 anticipated.