Tag: Articles

Pass-in rates rise as market falls

Posted on by Caitlin Dearden

This week’s market posted a timely reminder that wool markets are not one dimensional, that is less supply does not always equate to increasing price. Supply fell and at the same time prices across the board retreated back to August levels.

The Eastern Market Indicator (EMI) fell a further 53 cents on top of last week’s 21 cents fall, to end the week at 1,991 cents in AU$. The EMI in US$ terms was cushioned to some degree by a slightly stronger Au$. The EMI dropped 25 cents to end the week at 1,405 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) lost ground, falling 76 cents or 3.5% to end the week at 2094 cents.

Sellers reacted strongly to the cheaper market, passing-in 19.4% or 7,013 of the 36,084 bales that came forward. This resulted in a clearance to the trade for the week of 29,071 bales, the third lowest sale clearance for this season. Of note was that on Thursday Fremantle passed-in 33% of all offered bales, while in Melbourne 31.6% of fleece didn’t make growers reserve on Thursday.

In Fremantle, AEX reported that grower reaction to the lower price of Wednesday resulted in 13% being withdrawn prior to sale and a further 40% of fleece lines failing to meet grower reserve.

This again produced a reduced dollar value for the week of $67.95 million, with a combined value just ticking over the $billion mark to $1.05 billion so far this season.

In the wool auction weeks since the winter recess, 370,993 bales have been cleared to the trade, 60,000 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 5,500 bales per week fewer (Figure 2).

Looking to the same sale of last season, this week’s clearance was a massive 14,000 bales fewer, and for the rest of 2017 up to Christmas, all selling weeks cleared in excess of 40,000 bales. The weekly average for this season is sitting at 33,700 and is only likely to shrink as the season progresses.

While falls were generally in the order of 1 – 2%, the outlier was the superfine end where the weight of drought-affected wool caused the 16 & 17 MPG’s to pull back 4%.

Cardings were particularly hard hit this week, Melbourne and Fremantle reported the Cardings indicator down 7.5 to 8.0%, while Sydney lost 6%.

The week ahead

The offering next week is rostered at 38,702 bales, which is most unlikely to get to the auction as growers digest this week’s market correction.

The final day didn’t provide any good news as a lead into next week, so we are likely to see a continued easing in the market as buyers try to find sustainable limits.

 

Rising supply but demand is matching.

Posted on by Caitlin Dearden

Sheep and lamb slaughter has been on the rise, but so have prices. Both lamb and mutton values rallied this week with significant rain falling just as processors seem to be increasing kills and looking for stock. The question is how much further prices can go?

Meat and Livestock Australia’s (MLA) weekly slaughter data is a week old but it tells an interesting story. Lamb slaughter was down 11% on the same week last year, but sheep slaughter was up 27%.  The total sheep and lamb slaughter, shown in Figure 1, was almost exactly the same as the same time last year.

It appears the kill space is opening up again as supply improves, and there might be some money in sheep and lambs for processors again, as they are pushing prices higher.

The Eastern States Trade Lamb Indicator (ESTLI) gained 36¢ this week, rallying back to 737¢/kg cwt.  Heavy lambs are still the highest price, at 742¢.

Figure 3 shows Mutton values regaining much of the fall seen in early October. While lamb prices have never been higher, apart from recent times, mutton values were indeed stronger in December last year. This suggests mutton might have a bit further to go.

Restocker lambs had the biggest move this week, gaining 90¢ to move to 739¢. There are perhaps some restockers anticipating the rain seen this week will result in some good pasture growth in what’s left of spring.

What does it mean/next week?:

With increasing confidence and renewed restocker demand, it’s hard to see sheep prices falling.  Lamb prices might have a blip or two left in them when Victoria’s supply appears in November.  Recent forward contracts suggest we might have already seen the low, however.

Forward contracts breaking with tradition

Posted on by Caitlin Dearden

With rising concerns surrounding the supply of finished lambs during the summer, export processors have released forward contracts. We say the forward contracts are breaking with tradition because they are pegged well above the prices of the same time last year, which they no doubt had to be if they wanted to get any traction.

The widely published forward contracts came from Thomas Foods International (TFI) who released the same prices for their Tamworth and Lobethal plants, for delivery from the start of December to the end of February.  TFI priced both crossbred and Merino lambs at levels well above the summer of 16-17, but below the recent peaks of September.

TFI’s December price for crossbreds was 750¢, rising to 780¢ in January and 800¢/kg cwt in February.  Merino lambs are 30¢ behind, and all are for 18-32kg cwt lambs.  These are extraordinary levels for lambs and will be a boon for those who can finish lambs on green feed.  For those who have to feed grain to lambs, the forward prices should be profitable, and hence this is part of the reason they are pitched there.

Over the last few years lamb forward contracts have been available for the summer, and are generally released at this time of year, and pitched close to the levels of the previous year.   The thinking is that prices are usually low in spring, and forwards around last year’s prices are generally acceptable to producers.

This year pricing forwards even at 700¢ would be unlikely to get much take up.  With spring prices sitting around 700¢, and prices over 850¢ a recent memory, few producers would be willing to accept a 650-700¢ forward price.

Figure 1 shows where the crossbred forward prices sit relative to last year, the five year average, and recent prices.  They are 12 and 28% above last year’s Eastern States Trade Lamb Indicator (ESTLI) depending on when you are selling.

Figure 2 shows the same chart but for Merino lambs.  The National Merino Lamb Indicator (NMLI) has never been above the 770¢ on offer in February.  Merino contract prices are between 19 and 35% above last year, and look like even better value.

What does it mean/next week?:

If producers are confident they’ll have lambs for delivery in the December to January period, why wouldn’t they take up forward contracts for at least some of their supply?  For it to be a costly mistake, lamb prices will have to be consistently over 800¢ throughout the summer.

While its likely lambs will get over 800¢ at some stage, having the price and delivery locked in means there will be no hanging out for better values.  For Merino lambs selling forward should be seriously considered, as higher prices are even rarer.

With forward contracts for many weeks now booked up at TFI, producers seem to have been happy to get on board and lock prices in.

Key Points

  • Lamb forward contract for summer have been released.
  • December price for crossbreds was 750¢
  • Merino lambs are 30¢ behind

More green on the map boosting restockers

Posted on by Caitlin Dearden

Another week with some rain about and more on the forecast has cattle markets showing signs of improvement. The Eastern Young Cattle Indicator (EYCI) headed back towards 500¢, while Heavy Steers continued to show strength.

The 3.5% rally in the EYCI this week (Figure 1) looks small compared to the moves of recent years, but prior to 2015, it would have been considered massive. The October fall in the five-year average is of similar proportions to this week’s move. It’s an illustration of the volatility that historically high prices can bring.

Young cattle yardings were predictably low, as growers wait to see what the rain forecast will bring. The 12,000 head yarding (Figure 2) was up on the holiday affected yarding of last week, but still low for this time of year.

After being at inexplicably low levels last week, sitting at just 170¢/kg lwt, the Victorian Restocker Indicator rebounded back towards the NSW and QLD restocker prices, at 245¢. Queensland restockers are paying the most, with the indicator up 9¢ this week to 284¢/kg lwt.

Heavy and Trade Steers continue to lead the price charge. The heavies are expensive in Victoria while Trades are in NSW, at 525¢/kg cwt and 535¢ respectively. Finished cattle are the scarcest commodity at the moment. Normally at this time of year grassfed cattle are starting to hit the market.

In WA, the usual spring price decline is taking time to come to fruition. The lack of finished cattle and high-value beef from the east coast might be helping to prop up the grassfed cattle market in the west. The WYCI sits at 542¢/kg cwt, up 1¢ for the week.

Next week?:

There is plenty of green on the rainfall forecast map, which while not drought-breaking, will continue to see growers hold on and restockers nervous about where prices could go with a big rain. The first stop is around where prices were this time last year.

Finished cattle prices are already at last year’s levels, so don’t expect as much upside for those categories.

Supply and price respond to rain.

Posted on by Caitlin Dearden

Lamb and sheep markets along the east coast were provided with a price boost this week as some welcome rainfall saw lamb throughput ease. The Eastern States Trade Lamb Indicator (ESTLI) climbed 3% to creep back above 700¢/kg cwt.

Price gains across the eastern seaboard were not just limited to the Trade Lamb categories. NLRS reported saleyard prices posted gains in all reported categories, apart from Restocker Lambs which shed 4% to close at 649¢/kg cwt (Table 1).

East coast mutton was the stand out performer this week with an impressive 7% rally to 411¢/kg cwt. This was quite remarkable price strength shown by mutton, considering the unseasonably high numbers of sheep presenting at the saleyard. East coast mutton throughput is running 117% above the five-year average pattern for this time of the year, with elevated numbers particularly present at Victorian and NSW yards.

In contrast, the east coast supply of lamb dwindled during the week to see a drop of 14% to just over 145,000 head (Figure 1). Falling NSW lamb throughput is driving the east coast figures lower with a 32% fall on the week to see NSW lamb yarding levels trending 14% below the seasonal weekly average.

Perhaps NSW producers are responding to the falls of 15-50mm noted across much of the state this week (Figure 2).

Next week?:

A similar rainfall pattern to what we saw this week is expected for next week which may continue to provide some support to prices. Although, the big increases in Victorian lamb yarding levels are just around the corner as the Spring flush gets into full swing toward late October. This will act as a reasonable headwind on prices rallying too far.

A more likely prospect would appear sideways pricing movement at current levels in the short term with a continued downward bias as the Victorian lamb numbers start to flow. Additionally, the looming prospect of an El Nino is rearing its ugly head again as the BOM now forecast a 70% chance of one developing into late 2018/early 2019 and that’s going to weigh on producers optimism to hold or increase stock levels into the medium term.

Support emerges for the wool market.

Posted on by Caitlin Dearden

It seems that Fremantle was the “canary in the mine” last week. We reported that the market appeared to find support in WA late on Thursday and this translated into a stronger market this week.

The Eastern Market Indicator (EMI) picked up 31 cents for the week, settling back above 2,000 cents again, to end the week at 2,023 cents in Au$. The EMI in US$ terms was not quite a strong with the market receiving some benefit from Au$ movements, posting a 20 cents improvement to finish at 1,430 US cents (Table 1).

Last Thursday, Fremantle provided the confidence into this week. It also continued this trend to see the WMI gain a further 38 cents to end the week at 2,170 cents.

With a resurgent market, the Pass-in rate dropped below double-digit figures, with 7.4% of the total offering passed. This resulted in a clearance to the trade for the week of 29,709 bales, with 2,363 bales passed. There was a reduced dollar value for the week of $68.74 million and a combined value of $982.58 million so far this season.

In the nine auction weeks since the winter recess, 341,922 bales have been cleared to the trade, 46,600 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 4,660 bales per week (Figure 2).

Strongest demand this week came for 18.5 and broader types, with 21 & 22 MPG in Melbourne lifting almost 100 cents. There was a large offering of fine tender wool which struggled to attract sufficient demand and weighed down the fine wool market.

As noted in the Mecardo article, Fine wool volumes rising, the drought will increase this sector of the market and at the same time reduce the volume of broader types. We are seeing this play out in the market now, impacting & driving price movements.

An increase in fine Merino volumes has been anticipated due to the dry conditions in eastern sheep regions. This is starting to happen in earnest now, as the production from the higher rainfall regions in eastern Australia (which is finer to begin with), shows the effect of drought. This trend in supply will persist through to at least mid-2019, therefore the downward trend on fine wool premiums will persist for the same time.

Crossbreds prices remained firm, but it was noted that the better-prepared wools performed well while poorly prepared clips struggled with a much higher pass-in rate.

Cardings produced a mixed bag, cheaper in Melbourne, dearer in Fremantle and no change in Sydney.

The week ahead

Next week a slightly larger offering of 37,644 bales is rostered, and with Fremantle again providing a solid finish to the market we should see some level of support for the market.

The next 3 weeks have rostered 37k bales, and while the spring shearing is causing a slight increase week on week, it will be down around 20k on the same period last year.

 

WASDE & rain

Posted on by Caitlin Dearden

The rain has arrived in the east, but it’s still too early to call the drought broken. Nonetheless, the sound of rain on the roof is great therapy. In this weekly comment, we take a brief look at the WASDE report and how the market has reacted to the downpours.

The futures market is down 2% week on week (Figure 1). The market has largely been treading water over the past fortnight with the lack of substantive data. At this point of the year, the world production is largely set with only the southern hemisphere being a relative unknown. The big issue is where we go to in 2019, as globally we are on the tipping point.

The WASDE was released overnight (Table 1).  The report didn’t provide enough fire to really move the market, however global wheat production was reduced overall by 2mmt, with falls in Australia (-1.5mmt) and Russia (1mmt).

The USDA has lowered Australian wheat exports to 13mmt, however, at this point this is overly optimistic. While the east coast suffers through a deficit, the WA crop will find it’s way around the Bight. In the coming months, this figure will be downgraded substantially and impact the availability of global exports.

It was expected that the USDA would drop their projection to 17 or 18mmt, however they were conservative with 18.5mmt. This fall will not be a surprise to anyone in the Australian grain trade and will have little impact on pricing locally as most are working on a sub <18mmt national production figure.

The east coast has seen some very welcome rainfall at the beginning of the week, with more forecast over the next fortnight. This led to a 4% decline in ASX futures, with the contract falling from $441 to $424. However, the market regained all its losses and settled on Thursday at $441. The reality of the rain is that it is too late for the majority of the crop, and the only hope for consumers is the outcome of the summer crop.

What does it mean/next week?:

Harvest is starting to get underway in WA. Over the next month, it will be interesting to see how the frost impacted the crop. All expectations are still for a reasonable crop and sufficient stocks to feed the east coast domestic demand.

In the east coast, many will be watching the moisture profile to make the decision on whether summer planting of sorghum is worthwhile. At present, there are a lot of acres to be planted, with moisture being the only barrier.

Lighter Merino wethers looking profitable – if you’ve got feed.

Posted on by Caitlin Dearden

It’s the time of year when Merino lambs from the Riverina and Western NSW start to hit the market. To date, these lambs have been selling well, given the seasonal conditions. We may see the market kick in the coming weeks and as such it’s worth looking at probable and possible margins on buying, growing, shearing and selling these lambs.

The best place to get an idea of Merino wether lamb prices is on AuctionsPlus. While there are store sales throughout the Riverina, AuctionsPlus (AP) gives us a weekly prices series as well as weight and descriptions which we can compare to finished lamb prices reported by Meat and Livestock Australia.

Figure 1 shows that there is plenty of variability in the AP price. Given most lambs on AuctionsPlus are sold on property, the location of the sale can have a bearing on the price, as can the weight of lambs. The data used here included lambs from 19 to 55 kgs liveweight.

The last month has seen the Merino wether lamb price lift strongly. The average price has gone from 250¢ to over 300¢, an increase of over 20%. Wether lamb prices aren’t quite at the highs seen in January this year, or May 2017, but given the seasonal conditions, they are pretty good.

Part of the reason for the lift in the ¢/kg rate is a fall in the average weight. The dry year has seen average lamb weights on AP fall to 27kgs, from 32kgs in 2017 and 37kgs in 2016. Buyers are getting lambs at much cheaper dollar per head rates and as such, are prepared to pay more in ¢/kg.

So is there any money in buying Merino lambs?  Surely with the wool price in the 99th percentile we can turn a buck on buying Merino lambs. The gross margins look good, but costs this year could be high (Figure 3).

Wool prices for 19 micron can be locked in at 2200¢ /kg clean for December/January and with a cut of 2.5kgs, this should return close to $40/head. Finished Merino lamb prices should be good in the New Year, with even the weak price of 600¢ delivering a gross margin of $76 per head.  The recently released forward contract prices, above 700¢, offer very good margins on growing out Merino lambs.

What does it mean:

We’ve had a look at gross margins, but of course, costs need to be factored in, with feed, freight, mortality and shearing costs all cutting into the gross margin. A quick calculation of a full ration at $500/t to put on 18kgs liveweight will cost $50-70 per head. The worst-case price scenario still looks pretty good (Figure 3).  The strong price, which can be locked in for February in some areas, might encourage stronger demand for Merino lambs in the short term.

If you have green feed on hand and are lucky enough to score some of the forecast rain for the coming week, feed costs will be lower, and Merino lambs will be a very good investment.

Key Points

  • Merino lambs are not cheap in ¢/kg but weights are well down, making them buyable in $/head.
  • Gross margins on growing out and shearing Merino wether lambs are good, but feed costs will make a large dent in profits.
  • If green feed is available in the medium term, wether lambs should be a profitable trade.

Mixed supply signals as EYCI retreats.

Posted on by Caitlin Dearden

East coast cattle yardings continued to climb this week, spurred on by Victorian producers bringing stock forward. However, a breakdown of the throughput figures indicates that young cattle producers have begun to shy away from offering stock as the Eastern Young Cattle Indicator (EYCI) eased 6.25¢ to close at 480.75¢/kg cwt.  

Victorian cattle yarding levels lifted 15% as Southern producers take advantage of relatively firm prices for Trade, Medium and Heavy Steers. All three categories of Victorian Steer prices are marginally ahead of levels set this time last year and with the prospect of pasture decline as the weather warms it seemed enough to get producers to begin presenting cattle for sale.

The increased Victorian numbers underpinned a 7% lift in broader East coast throughput levels to see it move toward the upper end of the normal seasonal range in yarding levels for this time of the year with just over 56,000 head changing hands (Figure 1).

The higher volumes across the Eastern seaboard saw most categories of East coast cattle stage a price decline on the week, albeit marginally with falls of 2-5¢ noted. Indeed, Medium cow was the only East coast category to post a lift this week to close at 210¢/kg lwt (Table 1).

Curiously, young cattle yardings bucked the trend of the broader East coast cattle yarding level with the throughput for EYCI eligible cattle declining sharply to see average weekly numbers back below 10,000 head and trending along the bottom end of the normal range (Figure 2).

Year on year price changes was a likely reason for the pullback in young cattle offerings from producers. The EYCI is sitting 10% below levels set this time last season, while most other categories of cattle across the East coast are on par with 2017 levels.

The weaker EYCI isn’t finding support from offshore markets either with the 90CL frozen cow indicator shedding 5% to close at 555.5¢/kg CIF. Relatively firm US beef inventories and the prospect of additional supply out of New Zealand in the coming months is weighing on prices.

Next week

The Eastern coastal regions of NSW, Victoria and Southern Queensland are due for a 25-50mm soaking this week but not much is going to make its way into the middle nor western part of these states.

Adequate rainfall in some areas and the reduction in young cattle yarding numbers may offer some prospect of price support in the short term for the EYCI. However, broader seasonal trends in throughput suggest that cattle prices will continue to face headwinds. A softening 90CL won’t allow the EYCI to gain any real upside momentum either. It seems more likely a case of continued consolidation at current levels with a slight bias to the downside for the short-term outlook.

After the falls, could we be finding support?

Posted on by Caitlin Dearden

The wool market continued to retrace this week with most of the falls coming at the beginning of the selling before stabilising towards the end.

The Eastern Market Indicator (EMI) fell 21 cents for the week, settling below 2,000 cents for the first time since early August, to end the week at 1,992 cents in AU$. The EMI in US$ terms produced a bigger correction, falling 51 cents to finish at 1,410 US cents (Table 1).

A softer Au$ helped the market, by the end of sales it was quoted at US$0.708. This is the lowest it has been on close since January 2016.

In Fremantle, the market lost ground on Wednesday where the WMI fell 26 cents but posted a more positive result on Thursday, gaining 17 cents to end the week at 2132 cents.

The Pass-in rate again stayed in double-digit figures, with 10.9% of the total offering passed. This resulted in a clearance to the trade for the week of 34,999 bales, with 4,262 bales passed. This produced an increased dollar value for the week of $84.02 million, with a combined value of $113.84 million so far this season.

In the nine auction weeks since the winter recess, 312,213 bales have been cleared to the trade, 39,451 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 4,386 bales per week fewer (Figure 2).

We often look to Fremantle as a guide to next week due to the later finish to sales, and this week it is providing a positive view. After consecutively falling days by the end of the week buyers were showing support, with AWEX noting that all types including skirtings found support.

Crossbreds were also impacted by the falls with the exception of 32 micron which was slightly stronger.

Cardings continued there slide south with a further 35-50 cents lost across the selling centres this week.

The week ahead

A further reduced offering of 34,467 bales should provide some level of support for the market.

The final day was much steadier than the early part of the selling week, so a return from some processors can be expected to support these levels.