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Weekly Wool Forwards for week ending 22 February 2019

Posted on by Caitlin Dearden

Last week we tipped more activity on the forwards market in the coming weeks. What we didn’t expect, was the driving force behind the spike to come from South Africa. With China suspending all greasy imports from SA, overseas buyers have pounced on the Australian market to secure supplies through this uncertainty.

Sixteen trades dealt in total over the week, despite a lift in the AUD to 0.716 in US terms.

In the fine wool category, 19 micron wool traded at 2,310¢ for May 2019. Contracts for October 2019 dealt in a wide range between 2,190¢ and 2,260¢, while November saw deals struck at 2,200¢ and 2,225¢.

Sellers were happy to look well ahead to lock in some prices. February 2020 contracts traded at 2,200¢ for the 19 micron. Deals were also struck for October and December 2020, and even January 2021, at an agreed price of 2,075¢.

In the medium fibre category, we saw 21 micron at 2,290¢ for February 2019. June 2019 landed two deals at 2,240¢ and 2,260¢, while October and November traded at 2,150¢.

Wool supply issues in the north

Posted on by Caitlin Dearden

The drought is showing its effect especially in the northern selling centre (Sydney), where a very small offering of 7,500 bales last week met with strong competition.

The south and western selling centres provided the bulk of the offering with 23,000 & 9,500 respectively, while the solid demand was widespread across all centres.

The Eastern Market Indicator (EMI) gained 24 cents to accumulate a 57 cent rise this calendar year, ending the week at 1,968 cents. The Au$ was again slightly stronger up 0.4%; the EMI in US$ terms was also dearer up 21 cents to end the week at 1,401 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) continued to strengthen, rising 29 cents on the back of a solid performance since December last year to end the week at 2130 cents.

40,000 bales were offered for sale this week, with the trade clearing 38,030. Again, growers were impressed with the market and passed in only 5.3% or 2,135 bales.

It must be a strong market as Fremantle had a low pass-in rate, in fact on the final day 97% of fleece wool in the west was cleared to the trade providing the lowest pass-in rate since September.

The dollar value for the week was $83.28 million, for a combined value of $2.06 billion so far this season.

In the auction weeks since the winter recess, 864,304 bales have been cleared to the trade, 212,117 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 8,484 bales per week fewer.

All types benefited from the strong market, 28 MPG up 50 Cents for the week in Melbourne, while Skirtings and with the Cardings indicators all had a good week to end dearer across the board.

The week ahead

It is with some degree of confidence that we can look forward to the next few weeks at least. According to the AWEX roster, the next week 42,400 per week are predicted, with 35,000 and 36,000 bales the next two week.

Buyers are filling orders as best they can with limited offerings, especially noted is the lack of low VM, high N/KTex wool styles which continue to be highly sought.

When 620¢ is no longer enough.

Posted on by Caitlin Dearden

Late last week the lamb and sheep market found some strength.  Prices will only fall for so long before grower baulk and put other strategies in place.  Either supply has run out, or producers are holding off.  Either way it looks like we might have seen the bottom.

It took until later in the week, but the Eastern States Trade Lamb Indicator (ESTLI) and the National Mutton Indicator both jumped higher yesterday.  Based on the individual saleyard reports we know that supply was back, and even with a lot of lambs going direct to works, buyers had to battle it out.

The ESTLI finished the week up 22¢ at 643¢/kg cwt (figure 1).  This is after hitting a low of 621¢ on Tuesday.  The major market mover was Wagga, with higher prices on big yarding, while in Victoria yardings were well back, and prices higher.

The National Mutton Indicator was also higher, but figure 2 shows it hasn’t broken its downward trend.  It will have to go back past 420¢ before we can say that.

If you’re wondering why mutton has gotten cheap, figure 3 gives a pretty good idea.  Last week east coast sheep slaughter was at level which has only been beaten three times in the last 3 years.  That was last August.

WA and SA had the most expensive trade lambs this week.  Both sitting at 667¢/kg cwt, they are well ahead of last year, but likely have upside potential.

What does it mean/next week?:

It will be interesting to see if the price rise last week is enough to see lambs come back to the market. We wouldn’t really think so, but on the other hand processors do have a lot of lambs booked up, so prices aren’t going to go crazy.  For now.

I see red, I see red, I see red, and it’s not Valentine’s roses.

Posted on by Caitlin Dearden

Softening cattle prices across the board this week and all major NLRS reported categories of cattle across the East coast are now below levels recorded this time last season, including Heavy Steers, albeit marginally. However, some respite may be on the horizon thanks to an improved BOM outlook.

East coast cattle sale yard prices and movements, for the week and year, are listed in Figure 1 and it shows there wasn’t much romance for cattle producers during Valentine’s week. Feeder Steers posting the largest percentage fall with an 8.7% decline to close at 250¢/kg cwt live weight, 11% lower than where they were this time last year.

The Eastern Young Cattle Indicator (EYCI) registering somewhat muted declines, peeling off 3.3% on the week to finish a whisker under 460¢/kg cwt. Remaining steer categories easing between 4%-6.5%, while Medium Cow managed the best with the slightest of declines to close the week at 191¢/kg lwt. Young cattle in Western Australian markets also managing to trek sideways to see the WYCI finish just a few cents under 500¢/kg cwt.

Cattle slaughter levels since the start of 2019 have been closely following the five-year average seasonal pattern but have been running 8.6% above the levels seen last season. The additional supply a possible reason why we have seen cattle prices drift below levels recorded this time last year – Figure 2.

The Bureau of Meteorology (BOM) providing a bit of a Valentine’s gift for cattle producers though. Their preliminary three-month rainfall outlook, released on the 14th of February, showing a reasonably average start to the Autumn break for nearly all the Southern regions and patches of slightly drier areas in North Western WA, southern NT and Eastern Queensland – Figure 3.

Offshore beef export markets in the US also offering some love with the 90CL climbing to its highest level since mid-2017 to close above 625¢/kg CIF as a combination of reduced imported offerings, improved domestic US prices and increased US domestic demand have helped support imported grinding beef levels.

Next week

The combination of solid beef export prices and the first sign of an improved rainfall forecast should be enough to provide some support to cattle prices in the short term. A more in-depth rainfall outlook will be provided by the BOM at the end of the month and the closer we get to Autumn their forecast accuracy improves and may begin to encourage some restocking, at least in the south.

EU wheat at a discount

Posted on by Caitlin Dearden

In this week’s grain market update we take a look at the new crop contracts overseas now that we’re approaching the northern hemisphere harvest.

The Chicago wheat futures show some small gains at the start of the week, however overnight lost all of the weeks gains (and then some). The contract ended the week down 2%, or A$5 (Figure 1). This was due to US wheat exports for early January being lower than expected.

As we get close to the northern hemisphere harvest, the reliance on old crop starts to diminish as exports will start from the new pile.

This can be seen in the forward curve for Matif which is currently in backwardation (Figure 2). In a market experiencing backwardation, the forward future months will be priced at a discount to the spot futures market. A market in backwardation suggests that supplies are currently short, and buyers want the commodity now as opposed to the future. In essence this encourages sellers with stocks to sell now rather than hold, as the commodity is discounted in forward contract period.

It is still early but European and North American weather looks favourable to the crop, therefore the trade expects to see better production for the coming crop. This means there is less requirement (at present) to pay large premiums.

What does it mean?:

The BOM have released their 3 month climate outlook (Mar-May) with the majority of Australian growing regions forecast to receive median rainfall. Although long range forecasts need to be taken with a pinch of salt, it is positive compared to prior predications.

Prediction is very difficult, especially if it’s about the future.

Posted on by Caitlin Dearden

The rainfall and production prospects for the coming year are an unknown, will it be colossal or dreadful? The reality is that no-one really predict weather out 12 months with any degree of accuracy – not even astrologists. In this article we look at the ASX contract and whether it provides an opportunity for the coming season considering the drought premiums in the market at present.

The January ASX contract typically receives the highest level of attention, this is due to it aligning with the east coast harvest. The ASX contract could be a potentially fantastic risk management tool for producers and consumers, however liquidity has been an issue.

The January 2019 contract expired last month at a very attractive (for producers) A$434 due to the sustained drought through the past year. Since the contract expired, the open interest in January 2020 has increased dramatically (figure 1).

There have been many consumers who have experienced historically high procurement costs who are seeing the current pricing levels for next year as being high; but lower than last year.

In September, I pointed towards selling ASX for Jan 2020 as being a solid strategy (see here). The market at that point was in the A$369-374 range. The market then fell to A$330, which would have provided an on paper profit of A$39-44/mt. At the time we advised this is an opportunity for growers to hedge their 2020 crop and for consumers to recoup some of the losses of this season.

The market has started to creep up as consumers attempt to gain some cover for the coming year and concerns related to soil moisture as we head into seeding. Since the start of February the contract has traded at an average of A$343 (figure 2).

In figure 3, the December basis between ASX and CBOT is displayed for the January contract. This chart represents both the old NSW contract and the east coast contract as they are analogous. It is clear the basis level received during harvest this season was an outlier. The premium over CBOT was A$172/mt, versus a decade average of A$26. At present the Jan 2020 contract is at A$63 over, which would be considered ‘mild’ drought pricing.

What does it mean/next week?:

As mentioned in the preamble to this article, no one knows what will happen over the rest of this year. We could receive a bountiful supply of rain and grow a record crop, conversely, we could have a season worse than the last.

The current pricing levels for Jan 2020 would be considered very strong (if you remove 2018). It is my view that marketing plans should be conducted in chunks and if >A$340 is the worst price you receive for the coming season – that’s not a bad end result.

Key Points

  • The ASX has struggled with liquidity in recent years, however consumers are more readily accepting it as a risk management tool.
  • Historically attractive prices are on offer for the 2019/20 harvest.

Weekly Wool Forwards for week ending 15 February 2019

Posted on by Caitlin Dearden

An interesting trend has emerged this week in the auction market, where we’ve seen continual heightened prices across all micron categories. When coupled with the Aussie dollar on a continued downwards trend, one could expect that the forwards market could see more and more action in the coming weeks.

In the 18 micron category, one trade was dealt for June with the agreed price of 2350¢/kg.

In the 19 micron category, six trades were dealt. One was agreed for next month for 2285¢/kg. Two trades were dealt for May between 2240¢/kg and 2250¢/kg. Two trades were made for later in the year, November and December both agreeing at 2125¢/kg. The remaining trade was made for February next year for 2085¢/kg.

In the 21 micron category, two trades were dealt for April, one for 2200¢/kg and the other for 2220¢/kg.

While the Aussie dollar did rally slightly at the end of the week, the downward trend is still evident.  Throughout the time that this remains the case, activity from overseas buyers should be higher. The forward market has been very active for several weeks now, generally ignoring the fluctuating Aussie dollar value. This could hint that supply might still be a concern looking into the near future, but also could reflect an overseas comfort with the broader picture of Aussie dollar levels and trends.

For this weeks’ article investigating wool supply issues in the north see here

Supply forecast provokes aggressive buying.

Posted on by Caitlin Dearden

Despite a slight lift in volume of wool hitting the market this week prices managed to increase across most categories and centres. Looking ahead however, the roster indicates that the quantity of wool on offer is set to decline week after week.

AWEX reports claim that the forecast has led many exporters to attempt to secure volume while it’s available and sparked more aggressive buying behaviour this week.

The Eastern Market Indicator (EMI) ended the first day of sales flat, but increased 10 cents on the second day of selling, finishing the week at 1,944 cents. Last week’s Au$ rally came tumbling down this week, to 0.709 US cents. This saw the EMI take a harsh turn in US$ terms to close 25 cents lower at 1,380 cents (Table 1).

The market in the West showed much the same sense as in the East. The Western Market Indicator (WMI) gained 7 cents on the week to 2,101 cents.

The week saw a total offering of 39,894 bales come to market, with 7% passed in. This resulted in a clearance to the trade of 37,092 bales. The season to date has seen 992,742 bales offered which is short 176,735 bales compared to this point in the 17/18 season.

The dollar value for the week was $77.25 million, for a combined value of $1.97 billion so far this season.

Nearly all individual MPG’s saw gains in each selling centre this week. The only category to have taken a hit was fine wools in the South, which saw losses in the range of 5 to 25 cents. Fine wools in the North were a different story. Holding its first designated Superfine sale for 2019, the Northern region saw 16.5 to 18 micron wools lift 40 to 45 cents higher on the week, having received strong support for the event.

The Crossbred market continued its strong performance. 28 to 30 MPG’s were the most keenly sought after, with gains of 20 to 40 cents. Merino skirtings held firm across the centres, with limited offerings. The cardings indicators dropped back slightly in the East this week, while remained unchanged in the West.

The week ahead

Next week 39,520 bales are rostered for sale across the three centres on Wednesday and Thursday. This is only slightly reduced on this week’s volumes; however, a trend of declining supply is forecast. 38,205 and 35,275 bales are rostered for weeks 34 and 35 of the selling season respectively.

Price action suggests a rebound in supply

Posted on by Caitlin Dearden

The dip in lamb and sheep supply after last weeks shortened selling program was evident in throughput levels reported to Friday 1st of February. Lamb and sheep prices have continued to ease this week, suggesting that saleyard volumes have rebounded.

The Eastern States Trade Lamb Indicator (ESLTI) softened 4.6% this week to close at 633¢/kg cwt. East coast mutton was under pressure too, easing 7.6% to 368¢. Mutton prices across the Eastern seaboard have succumbed to elevated sheep slaughter volumes, with particularly high cull levels noted out of Victoria over the last month (Figure 1).

Victorian mutton slaughter has been running at weekly levels 24% higher than the five-year average since the start of 2019 and the increased volumes have continued to weigh on Victorian mutton prices with a 10¢ drop reported across Victorian saleyards according to the mid-week MLA market report. Victorian mutton is not the cheapest in the country though, at 378¢ it is still faring better than SA. SA mutton has dragged the chain, dropping 44¢ to 322¢ to make it the cheapest mutton in the nation.

East coast sheep yarding levels (as at Friday 1st February) are reflecting the shorter selling week with a 29% drop noted from the prior week’s figures to see just shy of 59,000 head change hands. The 2019 pattern is closely mirroring the five-year seasonal average trend and if this is any indication of what to expect for sheep yarding figures when MLA report them next Wednesday, we could see sheep yardings rebound toward the 85,000 head level (Figure 2).

A similar yarding pattern is emerging for East coast lamb with the 2019 trend also mirroring the five-year average (Figure 3). Lamb throughput (as at 1st February) declined 13% from the previous week to see it a whisker away from the seasonal average at around 138,000 head. Assuming lamb follows the seasonal average, we can expect to see a jump toward 190,000 reported for this week. Indeed, the price action suggests that supply has rebounded.

What does it mean/next week?:

Monsoonal conditions in northern Queensland have spun off a bit of moisture into the bottom South East quarter of the nation this week and a little more is forecast to fall into the coming week. While it isn’t enough to get lamb and sheep prices booming it’s likely to put a floor under further easing in the coming weeks.

What will northern rain do to the market?

Posted on by Caitlin Dearden

There have been floods in Townsville and massive rains across large swathes of Northern cattle country. There has, however, been no relief for much of the Murray Darling Basin. The wash-up, so to speak, was a little bit of support for cattle prices this week.

The Meat and Livestock Australia (MLA) cattle distribution map gives some food for thought (Link here). At June 30 in 2017 the areas which have been most wet accounted for 4.5 million head, or 17% of the National Herd.

While these regions are a long way from the slaughter markets we usually look at, cattle do flow south and so transport issues and the potential for grass growth could impact supplies to processors in Southern Queensland.

The Eastern Young Cattle Indicator (EYCI) only managed a marginal lift, gaining 6¢ to 478.5¢/g cwt, but prices in Queensland did make a bit of a move. The Queensland Heavy Steer Indicator gained 32¢ to 582¢/kg cwt (Figure 3), while Cows were up 26¢ to 426¢/kg cwt. Both are well above the same time last year when the EYCI is sitting at a 60¢ discount.

The Live Export prices out of Townsville were quoted at 290¢/kg lwt this week, at a discount to Darwin at 325¢. These prices are around the same as what is available from lotfeeders further south, so its unlikely many were heading that way. With the rain, there might be some now being drawn north, which should offer price support.