Tag: Articles

It’s a deal, it’s a steal, it’s the sale of the century

Posted on by Caitlin Dearden

A welcome sound not heard for a long time is being heard throughout large parts of NSW & QLD. The noise of raindrops hitting roofs. This week we cover a few factors from overseas impacting on markets including Egyptian purchases, Russian intervention, and the phase 1 deal.

In recent months weather forecasts have consistently tantalized without providing much (see map). Last week strong rainfall was forecast for large parts of the country, and like the boy who cried wolf – I didn’t believe the forecasts. As time flowed this one seemed to be coming to fruition, but I had been tricked into a false sense of security before.

To my delight, this one has delivered for many. Although this rainfall event would have been more welcome four weeks ago for the summer crop, it has provided a good dump of rain throughout the drought-ridden east coast. Let’s not get too cocky though, we’ll need a little more rain to guarantee a good 2020 crop.

Let’s start with the global market. At the end of last week, the Chicago futures market rallied as Egypt bought 300kmt of wheat, at the highest price since February. This volume was unsurprisingly black sea origin however provided a bullish sentiment for overall pricing.

Russia also assisted with the price rise by intervening in their markets. A new export quota limiting grain exports to 20mmt for the first half of the year was enacted. This caused some concern as interventions by what is now the world’s most important grain exporter could have ramifications for trade flows.

Relations between China and the US seemed to be thawing this week, as both countries agreed to a phase 1 trade deal. This deal is a starting point in improving trade between the two super powers, including the agreement to purchase an increased value in agricultural produce over the next two years.

In the agreement China are set to purchase $36.5bn (A$52bn) in 2020, and $43.5bn(A$63bn) in 2021. To put the scale of the increase in perspective during 2017 China purchased $24bn (A$35bn) in agricultural produce from the US (figure 2).

There is a lot of conjecture at present related to which commodities China will purchase in order to increase their value purchased.

The trade wasn’t overly impressed by the deal as it didn’t contain much detail in regards to products purchased, and included a market value clause:

‘The Parties acknowledge that purchases will be made at market prices based on commercial considerations and that market conditions, particularly in the case of agricultural goods, may dictate the timing of purchases within any given year.’

The big concern for me is that in order to meet these purchase requirements is that the trade flows may prioritise US as an origin for many agricultural commodities.

Remember to listen to the  Commodity Conversation podcast by Mecardo

What does it mean/next week?:

The rain is set to continue through many parts which will provide some confidence for the coming crop. This must be tempered by the reality of it being four months until seeding and nine months from harvest.

The price of GM crops

Posted on by Caitlin Dearden

The South Australian government is debating a bill to end the moratorium on GM crop cultivation. I received information from a contact related to claims from anti-gm activists. I thought it was time to dispel some of the activist’s misunderstandings.

The Mecardo team produced a report on behalf of Grain Producers South Australia (GPSA) and the Agricultural Biotechnology Council of Australia (ABCA). This report was instrumental in removing some of the inaccuracies present in the debate when it comes to pricing.

The information we received was that farmers were avoiding GM crops in Western Australia due to the high premium (up to $100/mt). The reality is that in Western Australia >28% of the Canola crop has been GM in recent years, a considerable volume when you consider that GM is generally used as an agronomic tool for cleaning up paddocks.

In figure 1, the weekly average spread for GM to Non-GM in Kwinana is displayed. As we can see the claim of A$100 discount for GM is a bit of a reach. It has averaged close to A$100 at points during this year. However, it hasn’t stayed there for a particularly wrong period. The average discount for GM canola is A$31.

Co-existence is possible between GM and Non-GM. If it were not, we would be seeing very strong premiums in South Australia against Kwinana due to its GM-free status. However, we do not see this happening (figure 2).

The market never lies. If there was a substantive premium for canola produced in South Australia due to its GM-free status we would see it in the price.

What does it mean for next week?

It is important to understand that GM crops are part of a toolkit for farmers. The discount for GM canola is variable and market-driven.

It is true that there have been large discounts at times, however, it has been close to parity with Non-GM at numerous points over recent years. It is up to farmers to decide whether the agronomic benefits outweigh the discount.

It is important to note that many activists use the GM spread erroneously, depicting that introducing GM canola would result in all canola dropping in price. This is incorrect, it is important to compare apples for apples with Non-GM canola in states to determine if the GM-free status provides a premium for producers. It clearly doesn’t provide a premium.

“Spirited” bidding gives sellers an edge

Posted on by Caitlin Dearden

The wool market is drawing close to the end of year recess and like many of us, exporters were spurred on to fill their orders to ensure they make shipping cutoffs. Demand kept slightly ahead of the increased supply, with most categories posting small increases on the week.

The Eastern Market Indicator (EMI) rose 11 cents for the week to close at 1,503 cents. The AU$ had another positive week, rising .05 cents to US $0.689. In US terms, this pushed the EMI up 14 cents to 1,035 cents.

The Western Market Indicator gained 10 cents for the week to finish at 1,614 cents. Mid micron fibres received most buyer interest, with prices 20 to 40 cents higher for the 20 and 21 MPGs. AWEX reported that all types and descriptions enjoyed the scramble for volumes.

The national offering was significantly higher this week with an extra 4,393 brought forward. The total offering was 42,542 bales. With the rising market, the pass in rate fell; back to 10.7%. This meant that 37,985 bales cleared to the trade. While this is the highest weekly volume of bales sold so far this season, it was still 4,544 bales fewer than the same week in 2018. The total lag in bale clearance from this season to last is currently at a difference of 107,825 bales.

The dollar value for the week was $61.89 million, with the average bale value sitting at $1,629, drifting 16 per bale below last week’s average. The combined value so far this season finally tipped over the billion-dollar mark to $1.007 billion.

The crossbred sector saw mixed results between selling centres. In Melbourne prices lifted by on average 20 cents while Sydney ranged from 15 cent losses to 7 cent gains for the 26 and 28 MPG respectively. The Merino Cardings Indicators defied the wider market again, but this time contracting, with losses of 15 to 20 cents.

The week ahead:

Next week is the last week of sale before the wool market breaks for Christmas recess. 39,430 bales are currently on the roster, with sale days on Tuesday and Wednesday across the three selling centres.

Sales will resume on the week of the 13th of January.

Ovine yardings reaching a peak

Posted on by Caitlin Dearden

It is the time of year when lamb yardings reach their seasonal high, driven largely by Victoria.  It was Sheep that reached a record last week, however.  This is no surprise given the very good prices at a time of year when they usually hit their lows.

East coast sheep yardings reached a new record last week, but only just.  There were 139,490 head of sheep yarded last week (figure 1).  This was only 321 head more than five weeks ago, but it’s a number which hasn’t been seen in at least 12 years.

Strong sheep yardings are being somewhat offset by weaker than normal lamb yardings.  Figure 2 shows lamb yardings were 14% below the same week last year, but in reality, it depends a bit on how you match your weeks up.  It looks like lamb yardings might be a week behind last year, but we should know if we have seen ‘normal’ supply by the end of next week.

Trade and Heavy Lambs found a bit of strength this week, the Eastern States Trade Lamb Indicator (ESTLI) bouncing off 700¢ (figure 3).  The spread between NSW and Victoria still stands at around 40¢, while WA prices fell back under 700¢ after four consecutive weeks of rises.

The heavy mutton supply has seen buyers able to pull prices back slightly.  The east coast Mutton Indicator fell 13¢ to 568¢/kg cwt.  Opposite to lamb, mutton in NSW is cheaper than Victoria.  This is probably a quality issue.

Next Week:

With no rain on the forecast as we come into Christmas, expect some big yardings next week.  What it does to prices will depend on how many sheep and lambs are booked up for the workdays in the break, but recent contracts would suggest processors won’t be scrambling for supply.  The last week might this time see the lowest lamb price since April.

Roll up, roll up for the wheat rollercoaster

Posted on by Caitlin Dearden

Up, down, side to side. The rollercoaster of the grain market continues to provide excitement. As harvest advances pricing levels have risen. In this week’s update we take a look at ASX pricing, WA forecasts, Trump deals, and UK elections.


The ASX contract has risen dramatically during the past week, at the end of last week the December 2020 was trading at a weekly average of A$344 and has now moved up to A$349 (figure 1). There are concerns from feed consumers related to the slow pace of harvest in Victoria, which is driven both physical and futures levels higher.

The ASX swaps offered by banks are expiring during the next week, and we can clearly see that there are contracts being rolled from the January contract to May. This allows consumers to maintain cover for this season without having to convert to physical.

The Grain Industry Association of Western Australia released its updated crop forecasts. After a strong crop last year the crop has disappointed this season. The production estimates and month on month change are shown below:

  • Wheat 5.4mmt (-8%)
  • Barley 3.9mmt (+5.3%)
  • Canola 1.1mmt (+13.5%)
  • Oats 400kmt (-13.2%)

The GIWA results in the past have been generally quite accurate, however, after discussing with contacts in the west, these numbers have room for further downward revisions.

On an international level, we have seen US futures trading downward for most of this week, but we have seen a large rise overnight. This has been driven by comments from Trump related to positive trade talks with China.

It’s a bit like groundhog day now, where China and US get close to a resolution only for a last-minute pull back. At present, a limited agreement is on the cards which will prevent the new tariffs due to be implemented on Sunday.

This has driven the markets higher as the prospect of trade flows returning to normal. I believe that it will be a while until trade with China is back to normal and that these negotiations will likely continue for some time.

The UK went to the polls yesterday for the 3rd time in the past five years. The election has been one of the most contentious in recent years due to Brexit, with one side calling for further referendums and the other to get the deal done. The previous parliament was unable to reach agreements on the Brexit package after numerous votes, resulting in the current election.

As the voting booths close the exit polls are predicting a very strong conservative majority. If this eventuates, we will see a strong rally in the GBP.

Remember to listen to the  Commodity Conversation podcast by Mecardo

What does it mean? – Next week:

Feed demand remains strong at present with buyers looking to fulfill uncovered feeding requirements. This has provided a beneficial jump in values for producers. Whether this continues when grower selling increases is yet to be determined.

The record cow values didn’t last long

Posted on by Caitlin Dearden

Just a month ago Cow prices were over 500¢, and almost the same price as the Eastern Young Cattle Indicator (EYCI).  This week cow prices continued to tank, while other cattle types largely held their ground.

Figure 1 shows state cattle indicators declining sharply since hitting a peak five weeks ago.  This week the Queensland Cow indicator fell a further 22¢ to hit a six month low. Dire weather conditions and another uninspiring forecast has seen cattle continue to move into the market.

Cattle slaughter hit another peak last week, moving to new highs not seen since 2015 (figure 2).  Yardings were lower last week on the back of the lower prices, but they are still very strong for this time of year.  This combined with plenty going direct, means processors don’t need to bid up at saleyards for supply.

Adding further price pressure was falling 90CL export prices.  After peaking at 968¢ two weeks ago, the 90CL has fallen 40¢, but figure 3 shows it is still way above historical levels.  The falls were largely due to buyers taking a break after Thanksgiving, but Steiner report there was little business done.

In WA cattle prices moved in opposite directions for young and old cattle.  The Western Young Cattle Indicator (WYCI) fell 37¢ to still a quite respectable 527¢/kg cwt.  Cow prices in the west were up 8¢, to 207¢/kg lwt.  Cows in the west are now at a premium to the east coast.

Next week

There is no rain on the forecast leading up to Christmas, which isn’t great news for prices.  We often see a large shift in cattle prices between years, as it either rains or it doesn’t.  Good northern rain would obviously see a strong move upwards, but forecasts don’t look promising.

Cattle supply overcoming export demand

Posted on by Caitlin Dearden

There have been no real movements in strong export beef prices in recent weeks, but cattle prices have been on the decline in saleyards.  It seems slaughter capacity might have been reached, and with processors booked up until Christmas, demand at saleyards is on the wane.

As we move into December the season definitely hasn’t improved in a lot of areas, and the cattle keep flowing.  Cattle slaughter reached a six month high a fortnight ago and is still bumping up against four-year highs.

Figure 1 shows the last time cattle slaughter was this consistently strong on the east coast was in 2015.  Interestingly, the EYCI at this time in 2015 was 600¢, showing the difference restocker demand can make.  Heavy steer and cow prices were similar to what we are seeing now, but margins for processors were much tighter.

We can see in figure 2 that at the end of 2015 the EYCI and 90CL Frozen Cow were priced around the same level.  Now the 90CL is at a 450¢ premium, not quite double the EYCI.

Slaughter capacity has been up to 11% higher in the past, but processors are no doubt reluctant to invest in opening up more kill space given the declining herd.  A good rain will see the supply of all cattle types tighten, and would mean processors would face the costs of closing down the extra space.

Cattle prices were down across the board last week, with declines between 10 and 30¢/kg cwt.  This might see supply tighten, and have growers waiting until the New Year.

Next Week:

There is yet again no rain on the forecast, and the outlook remains bleak for the next three months (figure 3).  It doesn’t mean it can’t rain, but it is still more likely to be dry.  Cattle can’t keep coming forever, and it is likely we’ll see things tighten and prices steady in January.

All downhill ‘til Christmas?

Posted on by Caitlin Dearden

A strong offering had the typical effect on wool prices, the market sliding another step lower this week. Growers protested the downward trajectory in hordes with passed in rates hitting 20.4% to see a total of 7,765 bales returning to brokers’ stores.

The Eastern Market Indicator (EMI) lost 38 cents for the week to close at 1,492 cents. The AU$ opened strongly which played into the lack of buying enthusiasm. The AU$ rose 0.07 cents for the week to US $0.684. In US terms, this pushed the EMI down just 15 cents to 1,020 cents.

The Western Market Indicator experienced falls in line with the eastern markets. The WMI dropped 36 cents for the week to finish at 1,604 cents. AWEX reported that lesser style wools did not fare well in this week’s market. Buyers continually discounted their pricing levels and by the end of the series, had fallen 50 to 80 cents.

The national offering was 322 bales higher this week for a total of 38,149 bales. However, the high passed in rates meant the number of bales sold was down by over 2,000 on last week’s volumes. Just 30,384 bales were cleared to the trade for the week. This season’s bale clearance continues to lag well behind 2018 at a difference of 100,281 bales. The average weekly bales volume is currently 5,164 behind last year.

The dollar value for the week was $50 million flat, with the average bale value sitting at $1,645, drifting $19 per bale below last week’s average. The combined value so far this season is $945.47 million.

The crossbred sector fell across all microns, losing 20 to 45 cents. Oddments were the only category to record gains. The Merino Cardings Indicators rose by an average of 2 cents across the three selling centres.

MAP your route

Posted on by Caitlin Dearden

This week’s grain market update includes a look at ‘cheap’ offers of fertilizer in Australia & the slowness of the Victorian harvest.

Recently I wrote an analysis article on the performance of the global fertilizer market (read here) and had a follow-up podcast with Chris Lawson of CRU (listen here). In these reports, we discussed the fact that Urea had fallen A$64/mt since September (figure 1) and DAP was down a massive A$196/mt since the start of the year (figure 2).

There is a lack of transparency in the fertilizer market. There is no open and publicly available pricing for fertilizer in the same way that we see for grain, wool and livestock prices. This means that largely pricing intelligence on local fertilizer tends to be anecdotal in nature.

Nonetheless, we have received reports from several readers who have informed us of offers that are substantially below recent years levels. As an example, there are offers of A$530/mt for MAP in VIC & SA. These same readers informed me that they paid >A$700 this time last year for supplies.

There are questions remaining about whether it is time to purchase, or whether there will be more cheaper parcels on the way due to the lower overseas prices. Whether it drops further or not, this year is likely to have a lower fertilizer cost than last.

On the grain front, the ASX contract has risen this week by A$7/mt to hit an average of A$345 for the week. This remains at a substantial discount to last year’s strong drought premiums at A$428 for the same week (figure 3). For producers looking forward to next year, there have been attractive trades for January 2021 at around A$340.

Harvest remains slow in Victoria due to uncooperative weather, however, is likely to move ahead with gusto in the next fortnight. There are many consumers who have been ‘hand to mouth’ buyers during November and December. There were many hoping for an early harvest that hasn’t transpired resulting in continued strong premiums for old crop grain.

Remember to listen to the  Commodity Conversation podcast by Mecardo

What does it mean/next week?

The big question remaining on everyone’s lips is what comes of the Victorian harvest. The ABARES report earlier this week confirmed that Victoria is the jewel of the nation this year.

Will there be harvest pressure in the coming weeks?

Beef exports down but China still rising

Posted on by Caitlin Dearden

Beef export figures for November are out, and we are getting a picture as to why export prices have been running rampant. While the total supply of beef for exports declined in November, it didn’t stop China from posting yet another record import level. 

Cattle slaughter was still relatively strong in November, so it is likely the cattle were lighter.  November beef exports were down 9% in October, but up 9% in November 2018.  In fact, November exports have only ever been higher once, in 2014.

Declining export volume didn’t stop China from taking yet another record amount. Figure 2 shows China was easily the biggest market for Australian beef, taking 33%. The comparison numbers again show rapid growth. The 34.2 million tonnes exported to China (figure 2) was up 12% in October and 134% in November last year.

With 90% of the beef exported to China being frozen, it is pulling more and more beef away from the US. Figure 3 shows declining US exports, with November being down 37% on last month and 14% on last year. Exports in November were also the lowest for that month since 2016, when total supplies were much tighter.

The US share of exports was 26% back in November 2016, and just 13% last month. This share was the lowest since 2010. There is not a glut of beef in the US, they are still very much chasing our exports. It seems that China simply has more money for beef at the moment.

Japan and South Korea managed to maintain their share of our beef exports, but in general, they are after more expensive cuts of beef.  With manufacturing beef prices still rising, there might be some better cuts going through the grinder.

What does this mean?

We’ve been following the rising 90CL beef prices over the last month and the rally in price fits nicely with export flows. The reports of US buyers scrambling for beef in a rising price environment shows up in much more beef going to China and much less to the US.

The market is still waiting for Chinese beef demand to flatten out, and see some sort of equilibrium reached in export markets. At present, however, things are still highly uncertain.