Tag: Articles

Mutton slaughter rising, but prices steady

Posted on by Caitlin Dearden

Sheep slaughter had its second highest week for the year as sheep continue to flow into markets.  There has been little impact on prices however, as with lamb, slaughter is down, there is still kill space to fill.

Chinese mutton demand continues to run hot.  Mutton slaughter was very high last week, yet the National Mutton Indicator remains at very strong levels, at 572¢/kg cwt this week.  Victorian Mutton did come back from record highs, losing 39¢ to 614¢/kg cwt.  Victoria is still the strongest in the state, just not as strong as last week.

Lamb slaughter remains well below last year, despite plenty flowing out of the south. The north-south split remains, but both NSW and Victorian lamb slaughter were 10,000 head below 2018 last week.

Figure 3 shows the Eastern States Trade Lamb Indicator (ESTLI) is still in decline, losing another 20¢ this week to 705¢/kg cwt. The ESTLI is still holding a 44¢ premium to last year, obviously being helped by tighter supply.

The National Mutton Indicator is at a 140¢ premium to last year, so it is doing a lot better.

WA Trade Lambs moved past the east coast this week, up 7¢ to 716¢/kg cwt, which combined with the ESTLI fall saw WA the more expensive.  In Victoria you could almost say trade lamb prices (686¢) tanked, losing 35¢ to be the cheapest lambs in Australia, apart from Tasmania (646¢/kg cwt).

Next Week:

The latest BOM outlook is less than promising for the east coast. If it remains dry we could see supplies remain strong, with females and Merino wethers adding to supply. If it gets wet, lamb prices probably have further to rally than sheep.

Live cattle flow on the up

Posted on by Caitlin Dearden

The October release of LiveCorp live export cattle flow shows a steady gain in volumes since August. This analysis piece looks at the breakdown of the trade with a focus recent changes to the flow to key export destinations and ports of exit.

The monthly flow of live cattle has reached its highest point this season in October at 117,511 head, mirroring a similar magnitude surge during October of 2018 (Figure 1). This places live cattle export volumes 21% above the five-year seasonal average trend for October.

Fueling the increased flow of Australian live cattle exports in recent months has been a resurgence in demand from Vietnam between August to October. Indeed, for the August to October period, the flow of Australian live cattle to Vietnam has averaged a 69% increase in the five-year seasonal pattern (Figure 2). In contrast, Australia’s largest live cattle trade partner, Indonesia, has demonstrated 10% higher flows over the same timeframe.

The changing dynamic of the live cattle trade isn’t just limited to destination points. Similarly, there has been a noticeable change in exits ports from Australia in recent years. Townsville has seen a steady rise in live cattle departures, pushing Queensland’s market share of departures from 24% in 2018 to 27% in 2019. Although, this has come at the expense of ports in the remaining key live cattle export states of the Northern Territory (NT) and Western Australia, down from 37% to 31% and from 21% to 19%, respectively (Figure 3).

Historically there has been a preference for live cattle exports from the NT to favour an Indonesian destination when assessing on both a volume and percentage of trade basis. Whereas flows out of Queensland favour Indonesia on a volume basis but is heavily geared towards Vietnam when comparing it by the percentage of total trade to each destination.

In the last five years (2014-2018), the volume of live cattle from the NT to Indonesia has averaged nearer 300,000 head per year, compared to 60,000 head into Vietnam. This equates to 55% and 30% of the total Australian live cattle trade flow to Indonesia and Vietnam, respectively.

During 2014-2018, Queensland has averaged 140,000 head to Indonesia and 89,000 to Vietnam. This equates to 26% and 43% of the total Australian live cattle trade flow to Indonesia and Vietnam, respectively.

What does it mean?

Given that Indonesia takes the lion’s share of Australian live cattle exports it is unsurprising that on a volume basis it is an important destination point for all export ports in the north of Australia. However, the importance of Vietnam as a key destination point for Queensland based cattle departures cannot be underestimated.

Certainly, the recent growth in Vietnamese demand for live cattle has underpinned the resurgence in flows from the port of Townsville. Indeed, average monthly flows from Queensland during the August to October period are running 147% above the five-year trend.

WA closing on the east coast

Posted on by Caitlin Dearden

Despite the free-flowing supply in the south Victorian lamb prices found some support, while mutton moved to a new record. WA lamb prices have also rebounded strongly and are now not far off the east coast.

It might be that Victorian lambs are finding support from mutton. The spread between the two prices, usually quite large, has this week come into 78¢, with mutton at just a 10.5% discount. The mutton discount is about as small as it gets, but last time it was when restocking was in full flight.  This time it is more about export demand.

Figure 1 shows Victorian mutton sitting at a new record of 643¢/kg cwt, now well ahead of NSW. It might be that fat sheep are coming out of Victoria, supporting the ¢/kg rate, relative to lighter sheep in NSW.

Lamb supplies appear to be tightening in the west, with trade lamb prices rising to a 3 month high of 709¢/kg cwt. Figure 2 shows that lambs in the west are now coming close to their east coast counterparts, after being at a discount for some time.

Mutton in WA remains at a large discount to the east coast.  It seems supply is still outstripping kill space, but as lamb supplies decline we might see some upside in mutton. WA Mutton might not get to east coast levels but should get stronger

Next Week

Lamb slaughter is heading sideways, and it seems it might have hit its limit for now. This obviously bodes well for prices, with 700¢ looking like the support level. There are apparently plenty of lambs booked up for December but some space might become available if mutton supplies decline.

Record spring yardings dampening prices

Posted on by Caitlin Dearden

Cattle prices continued to ease this week in the face of more rises in export markets. There is little doubting the driver behind lower saleyard prices, with the season yet to break and relatively strong prices drawing out supply.

It’s always about supply and demand. In the last couple of weeks, it has been increasing supply overwhelming strong demand. Figure 1 shows east coast cattle yardings hit 80,000 head last week.  Cattle yardings have only been this high once this year, back in April.

In fact, cattle yardings have never gone over 80,000 head in the spring. The numbers are quite remarkable given the declining herd, but strong prices and little feed are pushing cattle into yards.  No surprises that NSW and Queensland are leading the strong yardings, both up 31% and 68% on last year respectively.

With the heavy supply, it is improving demand, from the more increases in export prices, which is stopping cattle prices from really tanking. The Eastern Young Cattle Indicator (EYCI) lost another 10¢ this week to hit a five-week low of 504¢/kg cwt (Figure 2).

Heavier cattle categories took more of a hit. The National Heavy Steer and Medium Cow Indicators fell 47¢ and 48¢ respectively. Having hit 3-year highs recently, supplies are likely to have picked up in saleyards as growers try to take advantage of the highs.

The 90CL Frozen Cow indicator gained another 12¢ in our terms to post yet another record of 972¢/kg cwt.  In US terms, it hit the magic 300¢/lb, surpassing the September 2014 record. Never has cow beef been more expensive in the US, at least in nominal terms.

Next Week:

There has been a bit of precipitation about this week and there’s a bit more on the forecast. Given the much lower prices this week, we might expect as sharp a pullback in supply and steadier prices.  Some rain would obviously help find support and there should be some upside.

Wool market back to the base

Posted on by Caitlin Dearden

Since October, we’ve seen the market oscillate from gains to losses at the turn of each week. However, this week saw the second consecutive week of declines with both the eastern and western markets ending November back near the base levels found after the period of volatility during Winter.

The market has largely traded within a 100 cent comfort zone for the last two months and is currently closing in on the lower end of that range. The Eastern Market Indicator (EMI) lost 30 cents, on top of last week’s 19 cent fall to close at 1,530 cents. The AU$ fell marginally by another 0.03 cents to US $0.676. In US terms this pushed the EMI down 22 cents to 1,035 cents.

Fremantle fared the best of the three selling centres In the weakened market but didn’t escape a fall of 15 cents in the Western Market Indicator to end the week at 1,640 cents.

High pass-in rates continued, with 14.2% of the national offering passed-in. This was a small decrease of 1.5% compared to last week’s rate. Supply was slightly lower this week, with the national offering down by 471 bales to 37,827.  The number of bales sold was nearly unchanged at 32,464 for the week. This season’s bale clearance continues to lag well behind 2018 at a difference of 100,058 bales. The average weekly bales volume is currently 5,266 behind last year.

The dollar value for the week was $54.03 million, with the average bale value sitting at $1,664, drifting $27 per bale below last week’s average. The combined value so far this season is $895.47 million.

The crossbred sector edged lower again with 26 to 28 MPG’s losing 30 to 45 cents. The broader microns received more support with just a 10 cent decline for 30-32 MPG’s. The Merino Cardings Indicators managed to hold their ground for a second week in a row, remaining relatively unchanged.

The week ahead

Another large offering is on the roster for next week with 41,274 lined up across the three selling centres for sales on Wednesday and Thursday.

With just 3 more weeks of sale before the market closes for the Christmas recess, volumes are tipped to remain strong with 39,513 and 37,278 bales scheduled for the following weeks.

Blighted barley

Posted on by Caitlin Dearden

American markets have closed for the Thanksgiving holiday. Whilst they relax eating pumpkin pie and turkey the rest of the world carries on. In this week’s comment, we take a look at barley pricing.

The barley market has been under immense pressure over the past year. The past six months have seen a strong decline in pricing however the past fortnight has seen prices largely stabilise.

Since June barley pricing has declined by the following levels:
• Adelaide -19%
• Geelong -24%
• Kwinana -14%
The premium for wheat has increased dramatically since August, when (in Geelong) the premium started the month at A$10/mt. The premium has since increased to A$52/mt (figure 2), which is closer to long term average premiums.
The change in pricing levels has made barley far more attractive for feeding. During the past season, many consumers opted to reduce barley and utilize a higher level of wheat in feed rations. The consumers are now switching back to barley at these levels, however, will be keeping a close eye on changes to the spread.
The ASX wheat contract received some attention this week, with 53kmt trading on the exchange. The market has averaged A$338.25/mt for the week, which is up A$1 from last week. From a seasonal perspective, the harvest contract is down A$89/mt from the same week last year.

What does it mean next week?
As we move into December, we will see harvest moving further south into Victoria. Yesterday, I visited some crops in the Western Districts and they looked very good. As the wheat goes into the bins we may see some harvest pressure due to the heavily unsold positions by producers.

T-Ports: A look at pricing on the Eyre Peninsula

Posted on by Caitlin Dearden

This year sees the opening of the T-Ports facility on the Eyre Peninsula. This facility brings additional export capacity and with that the potential for extra competition. In this update, we examine the historical spreads between Adelaide and Port Lincoln.

In recent days there has been commentary that the spread between Port Lincoln and Adelaide had narrowed as a result of the introduction of the T-Ports facility. We thought it was worthwhile to examine the historical spreads between the two-port zones.

The T-Ports facility is based at Lucky Bay and utilizes a different loading method from any other grain export port in Australia. Up until now, grain in Australia was loaded onto vessels in Australia direct from a berth, T-Ports will use a transshipment vessel.

The transshipment vessel ‘Lucky Eyre’ will load grain at Lucky Bay, which will then sail to deep water vessels to transfer the grain onboard. This is a relatively common way of loading vessels in regions where vessel drafts are an issue.

In figure 1, the historical prices for APW1 are shown for Adelaide and Port Lincoln. Typically, Adelaide and Port Lincoln have traded at similar levels for much of the past decade. There have, however, been periods when Adelaide has traded at a strong premium, especially during the past 18 months.

This spread is clearly displayed in figure 2. This chart represents the premium or discount between Port Lincoln and Adelaide. Last year saw the discount at its largest level versus the rest of the decade. However, recent months have seen the spread narrow.

There is some speculation that this narrowing of the spread is due to the extra competition encouraging buyers. However, at present, it is hard to confirm whether competition is the cause.

We do know, however, that last year Adelaide was pricing into the eastern state domestic homes, rather than the export market. As the market has come off the boil, Adelaide pricing has fallen dramatically. It is more than likely that the larger discount at Port Lincoln last year was a result of the cost of logistics to the domestic market.

What does it mean?

The T-Ports facility is a fantastic addition to the Australian grain export market. This model is one that can be rolled out in further regions, at a potentially lower cost than traditional berth-based discharging.

Grain growers on the Eyre Peninsula now have additional options for delivering their grain, which will in many areas reduce their freight costs.

More of the same for lambs and sheep

Posted on by Caitlin Dearden

Sheep and lamb markets are doing funny things. Lamb slaughter is well behind the same time last year, yet prices keep falling. Sheep slaughter is the same as last year, and on the rise, but prices remain steady.

Figure 1 shows east coast lamb slaughter, which for the week ending the 15th of November was 6% below the same time last year. Victorian lamb slaughter was very close to last year’s levels, it was NSW and South Australia dragging the chain.

With Victorian lamb supply starting to flow, the Eastern States Trade Lamb Indicator (EYCI) continued to drift lower. It wasn’t only Victorian lambs that were cheaper, however.  Victorian Trade Lambs were down 26¢ to 703¢/kg cwt, while in NSW they were more expensive but still down 24¢ to 732¢/kg cwt. The ESTLI was not surprisingly in the middle of the two main states, at 718¢/kg cwt (Figure 2).

The ESTLI is still 29¢ stronger than the same time last year, which is partly explained by the lower slaughter.

We looked at the stronger sheep demand earlier in the week and it has continued. Figure 3 shows sheep slaughter lifting again last week to equal last year’s highs. The east coast mutton indicator was steady at 594¢/kg cwt this week, a massive 169¢ premium on last year.

Lamb prices in the West found some strength this week, up 20¢ to 680¢ and a three month high.  Mutton prices are still behind the east coast, at 458¢, while restocker lambs look very cheap at 475¢/kg cwt.  We suspect it was a small yarding.

Next week

There isn’t much rain on the forecast for the next week and the BOM has today given another depressing three month outlook.  It might be more of the same for lamb markets as Victorian supplies continue to flow.

Market unable to sustain momentum

Posted on by Caitlin Dearden

Grower reaction to the recent better wool market resulted in an increased offering, however, this proved too much for the market and it lost momentum this week. AWEX reported that the retracement was across the board, following the weak finish in Fremantle last week.

While the trend for the week was softer, on the final day some support was evident and Fremantle was quoted as “ending on an encouraging note”.

The Eastern Market Indicator (EMI) gave up the 19 cents gained last week to close at 1,555 cents. The AU$ fell marginally by 0.03 cents to US $0.679. This meant the EMI in US$ produced a small retracement, losing 13 cents for the week to 1,057 cents.

The softer market saw the Western Market Indicator (WMI) down 22 cents on the week to close at 1655 cents.

Again, growers were happy to resist the softer market. The pass-in rate increased to 16.1% for the week, up 9% on last week. The national offering of 38,297 bales was a 2,000 bale lift to last week’s volumes. Despite an increased offering, bales sold, at 32,143 was 1,500 bales fewer than last week’s total. This season’s bale clearance continues to lag well behind 2018 at a difference of 100,639 bales. The average weekly bales volume is currently 5,500 behind last year.

The dollar value for the week was $54.37 million, with the average bale value sitting at $1,691, $90 per bale below last week’s average. The combined value so far this season is $841.1 million.

The crossbred sector is following its normal pattern, finding its lows over the past 5 years in November & December. On a positive note, recent history shows a firming trend for the new calendar year. The skirtings market found good support, especially for better style finer types, while cardings remained largely in line with last week.

The week ahead

A relatively large offering is scheduled for next week’s sales with 39,280 bales currently on the roster across the three selling centres. Again we pin our hopes on the encouraging tone observed in Fremantle to the end of Thursday’s sales.

ASF pressure sees EYCI-90CL spread to widest discount

Posted on by Caitlin Dearden

US-based consultants Steiner, published by Meat and Livestock Australia, report a surge in the 90CL imported beef export price as panic buying sets in under strong African Swine Fever (ASF) induced demand pressure. Despite the big leap forward in the 90CL, domestic Australian cattle values softened across the board this week as the poor outlook for rainfall continues to bite.

The 90CL imported beef export price jumped 14% from 840¢ to 960¢ as both US and Chinese buyers fight it out for access to Australian and New Zealand manufactured beef products (Figure 1). This price point is well and truly into record territory for the 90CL and it pushes the spread between the Eastern Young Cattle Indicator (EYCI) and the 90CL to a record discount, on a cent per kilo basis.

Figure 2 outlines the historical spread between the EYCI and the 90CL in both ¢/kg and percentage terms. The sharp rally in the 90CL puts the discount at 443¢/kg, the widest it has ever been. Indeed, it was back in November 2014 that we saw the discount between the EYCI and the 90CL at anywhere near the current level when it blew out to a 351¢ discount spread during the midst of Australia’s last significant drought event.

However. a more accurate reflection of the magnitude of the discount spread is to measure the gap between the EYCI and 90CLl in percentage terms (as shown by the grey line on Figure 2). The current percentage discount spread has widened significantly to 46.1% but is yet to reach the record 51.6% discount recorded during November 2014.

Young cattle prices within Australia failed to respond kindly to the surging export market with the EYCI easing 4.25¢ to close at 512.75¢/kg cwt. A sentiment mirrored across all MLA reported categories of cattle across the eastern states this week with price drops ranging from 1.5¢ for Yearling Steer to 21¢ for Medium Cow.

Next week

Hampering the ability for domestic Australian prices to fully benefit from the rampant offshore demand for beef continues to be the poor outlook for rainfall in the coming month (Figure 3).

An expected delay to the northern monsoon season continues to see Queensland suffer under a very low expectation of exceeding normal rainfall levels for this time in the year, and this is particularly true for the far northern regions.