Tag: Articles

The Eastern States Trade Lamb Indicator (ESTLI) continues to hold above the 800¢ level as the Victorian flush shows no sign of getting underway yet. However, a jump in sheep yardings in recent weeks has seen the National Mutton Indicator (NMI) take a bit of a slide.

Victorian weekly lamb yarding numbers are running close to the five-year trend currently, just shy of 30,000 head, Figure 1. Last season a drier winter and spring saw numbers present earlier but this year the season has been relatively good for Victorian producers so there will be the opportunity to hold onto lambs to get the most out of their pasture.

The ESTLI seasonal spring decline has stalled in recent weeks as the east coast weekly lamb yarding numbers hover around the 150,000 head region. It is the surge in Victorian lambs we see during September to November that is usually the catalyst for the ESTLI to reach its seasonal low so the next leg lower in price isn’t likely to come until the Victorian throughput starts to swell.

Turning to markets with elevated throughput, East coast sheep yarding levels have been surging of late to see recent figures extend beyond the upper boundary of the normal seasonal range – Figure 2. Above average yarding levels in NSW a key driver of the high east coast figures with weekly sheep throughput over the last month averaging 36% above the five-year trend in this state.

NSW mutton prices reacting accordingly this week posting a 6.4% drop to close at 542¢/kg cwt and dragging the NMI lower too. The NMI finishing the week 4.8% softer at 536¢/kg cwt. In contrast, the ESTLI managed a slight gain, up 1% to rest at 811¢/kg cwt – Figure 3.

Next week

All eyes on Victorian lamb throughput levels in the next few weeks as that will be the clue to the timing of the next dip lower in the ESTLI. Our projections put the ESTLI trough this spring at around the 730¢/kg level in early November.

For the superstitious among us don’t do anything risky today – its Friday the 13^th after all… and stay clear of black cats, just for good measure.

The August drop in greasy wool prices was substantial, with drought conditions increasing the sensitivity of farmers to lower wool prices at a time of high feed costs and high sheepmeat prices. This article takes a look at the average Merino micron price during the past seven decades and ranks the August price drop.

Greasy wool, like other commodities, is subject to big cyclical upturns in price and big cyclical downturns. The late rising cycle, which peaked in 2018, was boosted by falling supply. That factor remains, and looks likely to intensify, but seems to have been overridden by a combination of weaker retail demand and a supply chain upset by a tariff war between the USA and China.

Figure 1 shows a composite indicator which represents the average Merino micron price, from 1947 to last month in Australian cents per clean kg. The average Merino micron (as opposed to the average flock micron which is currently 1.1 microns broader) is also shown in Figure 1. The price is shown in nominal terms but even so the peaks of 1951, 1973 and 1988 stand out along with the 2018 peak.

Using this price series, the top 20 monthly price falls since 1947 have been calculated. These are shown in Table 1. The winner in terms of largest monthly price fall is February 1991 when the auctions recommenced after the failure of the Reserve Price Scheme (a salient reminder to anyone suggesting we should attempt to manipulate supply in order to manipulate price – if it was that easy). The collapse of the RPS and its immediate aftermath, have another three places of the top twenty monthly price falls.

The next major set of price falls come in a year best remembered for its peak – 1951. Five of the top twenty monthly price falls come from 1951 alone, after the market peaked in March 1951. That is a big effort.

The 1973 peak takes out four spots with two in 1973 and two more in 1974.

Following the 2002 price cycle, which was a classic post stockpile liquidation cycle, prices fell by 17% in May 2003. This ranks as tenth on the ladder.

Amongst these price falls August 2019 ranks ninth in proportional terms. In nominal terms, it is the largest fall but for a valid comparison to the earlier periods prices need to be adjusted for inflation.

The history of price falls after major cyclical price peaks suggests we could experience some more months (not necessarily staring away) of significant price falls. It is possible that the low and falling supply will help mitigate further big monthly falls. In 1988, supply was at peak levels while in 1951 supply was rising. In 1973, the greasy wool supply had fallen from recent levels but was still relatively high. The 2002 cycle was different as supply had fallen significantly in the previous decade.

Key points:

• The August fall in Merino price ranks ninth in proportional monthly price falls during the past 70 years.
• Following previous major price peaks, where supply was rising or was already high, there were a number of large month falls in the subsequent 1-2 years.
• Supply is different in this cycle as it is low and falling, which may help reduce the number of big monthly price falls.

What does this mean?

The August price fall in the greasy wool market was not unusual when previous down cycles from major peaks are considered. Low supply remains an issue in the Australian greasy wool market, and it may show up by limiting the number of big monthly drops in price we experience.

The wool market had a small reprieve from the exhaustive losses that began in June. We did see a similar pause a fortnight ago, although reports from the auction floor suggest that this time around it might be the point of recovery as glimpses of fierce competition were observed on day two.

The Eastern Market Indicator (EMI) fell 32 cents on the first day of sale but recovered 22 cents on Thursday to end the week at 1,365 cents. The Au$ rose to US $0.682 at the weeks close.  As a result, the EMI in US$ terms actually saw a 9 cent gain for the week to finish at 931 US cents (Table 1).

In USD terms the Merino market has basically given up all its gains made since 2015, in the space of 7 months.

It was in Fremantle that AWEX reported a “noticeable change in the room” in the last hour of selling, with strong competition lifting prices. There was an overall loss across all fibres and the Western Market Indicator lost 33 cents on the week to close at 1,383 cents.

Most Merino types saw losses in the range of 10 to 30 cents. Crossbreds and Cardings managed to source some interest. 28 to 30 micron wool recorded gains of 5 to 10 cents, while the Cardings Indicators rose 10 to 30 cents in all three centres.

A significant proportion of sellers withdrew their offering prior to sale. A total of 21,694 bales were offered, of which 11.5% were passed in. Just 19,194 bales were sold for the week. Incredibly, in the seven weeks of this season, 81,731 bales fewer sold than the same period last year and 2018 was already a season of low supply to compare to.

The dollar value for the week was $29.32 million, for a combined value so far this season of $296.49 million.

Prices on the wool forwards market are currently sitting above the spot market, in a rarely seen case of contango. This provides further confidence that the physical market will pick up momentum in the coming weeks.

The week ahead

Was this week a case of a dead cat bounce or have we found the base is the question on everyone’s mind. Positive news in the planned resumption of US-China trade talks may have been the pinch of confidence that buyers needed.

Next week 27,923 bales are rostered on offer across Sydney, Melbourne and Fremantle. The following weeks 33,465 bales and 28,654 bales are expected.