Tag: Articles

No World Cup dive for our cattle prices

Posted on by Caitlin Dearden

It does seem fashionable to take an easy dive now with the World Cup in full flight. Alas, the Socceroos are out and our ovine market commentator was right, I was up bleary-eyed mid-week to see the crashing exit. But at least there is something to cheer about when it comes to cattle prices this week.

The Eastern Young Cattle Indicator (EYCI) is mirroring Messi’s last-minute breakthrough against Nigeria to see a solid 4% gain on the week to close just shy of $5 a kilo cwt. As noted in our beef comment from last week some rain in NSW and Queensland has helped the EYCI to lift. In addition, our analysis earlier in the month on improving processor margins suggested this could help see the EYCI recover toward the 500¢ level mid-Winter.

In other sale yard cattle categories prices were also improved this week with gains noted between 0.5% to 3.5%. Medium Steers were the only type to show some red ink (indeed as red faced as the Germans after their shock exit), closing at 252.6¢/kg lwt – Figure 1.

East coast throughput rebounded 37% this week to see it sitting comfortably within the normal seasonal range for this time of the year and slightly above the five-year average – Figure 2. NSW was the only state to record throughput levels above the seasonal average this week, suggesting the dry spell still having an impact there on sale yard cattle numbers.

In the West, cattle yardings have eased 16% and this has given the Western Young Cattle Indicator a bit of a lift too, posting a 2.3% gain to close at 529.5¢/kg cwt. In offshore markets the 90CL down a mere 1.3% and still sitting at good levels at 572.7¢/kg CIF – Figure 3.

What does it mean/next week?

Light rain forecast for Victorian and some central Queensland regions, along with some good falls for WA, should keep the cattle markets ticking along nicely. And with an early prediction for the World Cup final expect to see Belgium take on England, with the English taking the cup after a 52-year hiatus. You heard it here first…

At least lamb and mutton are kicking goals

Posted on by Caitlin Dearden

It has been a long week for Mecardo’s resident ‘football’ nut in Ballarat, breaking up a busy week with a late night only to see the Socceroos going down two-nil. This correspondent is more interested in the local brand and is hoping the Demons can emulate the form of lamb and mutton this week, and get back on the rising trend.

We weren’t going out on too much of a limb by predicting the Eastern States Trade Lamb Indicator was going to hit a new record by the end of the week. At least it was right, the ESTLI closed Thursday at 710¢/kg cwt (Figure 1).  A couple of years ago we also predicted this but got it wrong. Demand has caught up, and supply seems to be seriously on the wane.

We have concentrated on the goings-on in the east this week, but lamb and mutton in WA have also rallied, albeit to a lesser extent.  The WA Trade Lamb Indicator (WATLI) has gained 50¢ since the end of April and while not matching the ESTLI this week, at 647¢/kg cwt it’s only a week behind (Figure 1).

Mutton is somewhat defying the live export issues in the west, with the WA Mutton Indicator gaining 62¢ in June to hit 431¢/kg cwt (Figure 2).  This is still 82¢ behind east coast values, which equates to around $16 on a 20kg cwt sheep.  The rally in east coast price might be propping up the west, as demand can draw sheep across the Nullabor.

What does it mean/next week?:

This week’s rally in sheep and lamb markets has occurred in the absence of any real rain.  We’ve had a couple of reports of the dearth of sucker lambs which normally come out of NSW at this time of year, and this is obviously helping to drive the market.

All indicators are pointing towards continued strength for sheep and lamb for the short term, and hopefully, the Demons can emulate the ovine strength, rather than the Socceroos form.

End of a memorable season for wool

Posted on by Caitlin Dearden

The big upward move in the wool market last week and the return of Fremantle resulted in an increased offering this week, with the market easing slightly.

The end of financial year sale resulted in finer types retreating by 20 to 40 cents.

The Eastern Market Indicator gave back 17 cents over the week to settle at 2,056 cents in AU$ terms. AWEX noted this was 531 cents above the corresponding market last year, almost a 35% increase (Figure 1).

Medium wool is trading at historically close levels to finer types, with the 21 MPG in Melbourne closing the week at a record 2350 cent, just 19 cents below the 19 MPG. (Figure 2)

This lends support to the theory that while demand is strong and marketing efforts have been positive, supply is causing buyer concern.

The Australian dollar was stable at US$ 0.73, resulting in the EMI closing slightly softer at 1,513 US cents, US$0.13 below last week.

Despite the record levels, growers lifted their Pass-In rate to 6.1% (last week 2%) which meant 29,830 bales were cleared to the trade.

To summarise the year, 1,803,594 bales were offered, 48,000 more than last year, with Melbourne offering 60,000 more, Sydney up by 16,000 and the Fremantle offering 29,500 fewer.

This resulted in $3.434 billion turnover for the year, while the average number of bales sold per week has been 39,253.

The week ahead

Next week is the first sale of the new financial year and all 3 selling centres are selling. A much larger offering of 43,232 bales are rostered for sale.

This will test the market however the recent trend of growers being prepared to Pass-In wool when the market eases should provide support.

We have lift off.

Posted on by Caitlin Dearden

The wheat market is firing on all cylinders. We are going to the moon. The pedal is to the floor. We are cooking with gas.  These are a few appropriate analogies for the market movement this week. In this article we look at the price movements in Australia and seven other markets around the world. 

The ASX east coast wheat coast contract has been on a steady climb over recent weeks however this week the market has been on fire. The price has increased a whopping $27 since last Friday (fig1). This is because of continued dry conditions on the east coast in conjunction with the flow on effect from the wider worlds woes.

It is a catch-22 for many, as although prices are high many are not able to take advantage due to lack of production especially in northern NSW/QLD. The high price is very unlikely to mitigate for the loss in yield. The producers in Victoria and parts of South Australia with reasonably good crops will all going well be able to take advantage of the benefit of inflated pricing.

As alluded to earlier, conditions in other parts of the world are on a downward trend. In last weeks update I mentioned that northern Europe is in dire straits. The last few days of harvesting are pointing to this resulting in Europe’s export capacity declining. This has resulted in futures around the world rising, with the majority of wheat exporters now seeing year on year declines in exportable surplus.

In the last fortnight the different wheat futures around the world have seen solid gains (fig 2), with only between 3-4 days of negative results (dependent upon bourse). It is going to be an interesting month as we gain more resolution on the northern hemisphere crop.

What does it mean/next week?:

In Australia the lack of rainfall is likely to result in continued strong pricing well into the 2019/20 season on the east coast.

The commitment of traders report will likely see an increase in the long (bought) position in wheat by speculators. At some point they will likely want to take their profits leading to some price correction. Nonetheless the fundamentals are supporting these strong levels, especially in Australia.

Restocker demand down but a base might have been found.

Posted on by Caitlin Dearden

With drought conditions in much of New South Wales and parts of Queensland, it has been interesting to see the Eastern Young Cattle Indicator (EYCI) find somewhat of a base in the last couple of weeks. With further dry weather forecast, we attempt to ascertain whether this is a support that’ll track along for a while, or whether it’ll take another leg lower.

It was only a fortnight ago the Bureau of Meteorology (BOM) released a depressing looking three-month rainfall outlook formuch of the east coast. If you thought it couldn’t get any worse, think again, with the mid-month update released last Thursday trumping the previous one for depressing brown areas. Figure 1 shows most of NSW and Victoria have a low chance of exceeding median rainfall from July to September.

The latest three-month outlook comes just as the EYCI is starting to find a base. Having fallen consistently for two months, the EYCI hit 466¢/kg cwt a fortnight ago and has since rallied 14¢ to 488¢. It’s worth noting that prices remain very good considering the conditions. The last time we had a dry spell like this, the EYCI was much closer to 300¢ than 500¢.

Figure 2 shows weakening restocker demand has been assisting the EYCI lower. Restockers have gone from paying a 6% premium to the EYCI itself to a 4% discount. The restocker spread has never been this low for very long. During the height of the 2013-14 drought, restockers were getting their cattle for a 2% discount.

Part of the reason the restocker discount is larger than in 2013-14 is that lotfeeders are still paying strong prices. In EYCI saleyards, lotfeeders are paying a 3.5% premium to the EYCI despite grain prices at close to 10-year highs. This tells us that there are some good prices for finished cattle being offered down the track.

While it’s a little counter-intuitive, the dry weather looks to be raising serious concerns around the late winter and spring finished cattle supply. Additionally, the herd rebuild didn’t gain enough momentum to see processors swamped with unfinished cattle and cows. The supply and demand of slaughter cattle looks to have found an equilibrium of sorts.

What does it mean/next week?:

We know it will take rain for the EYCI to move higher, but based on export prices and supply it looks like prices might have found a base for now, and will track sideways for a while. If the winter and early spring remain exceptionally dry, supply could increase and push price lower, but for now, it looks like things might hold, with the five-year average (Figure 3) seemingly the most obvious path.

Key Points

  • The latest BOM forecast has pegged the probability of better than median rainfall is low.
  • Historically restocker demand hasn’t been weaker, processor and feeder demand is still strong.
  • Despite the dry forecast, young cattle prices might find support at current levels.

Uncertainly certain.

Posted on by Caitlin Dearden

As we near the northern hemisphere harvest period, volatility comes into the market, further assisted (and at times hampered) by continued political posturing by the giants of the US & China. In this week’s comment, we look at weather concerns and pricing in the world’s largest wheat producer.

At the end of last week, the markets were rocked by the erection of tariffs firstly by the US, followed by retaliation by China. The worst impacted ag commodity was soybeans (see article), however, wheat didn’t fare all that better. The spot contract had lost 23¢/bu between Friday and Tuesday but has since regained its grounds returning to Friday levels (Figure 1).

The June/July period is typically the most volatile time of year due to the start of the northern hemisphere harvest. There are diverging opinions on the outlook for the black sea region, with some analysts dropping production estimates at the same time as other raising them. One thing we know with certainty is that that region has a high degree of uncertainty; surprises are common.

China is the world’s largest wheat-producing (and consuming) nation and they have had a hiccup this season. Poor weather has hampered the crop resulting in a fall in forecasts for the crop, with official Chinese government estimating a drop of 3mmt year on year. The crop concerns have resulted in local Chinese prices rising since the start of June, albeit from a multi-year low (Figure 2).

This may lead to an increase in imports which would likely originate from out with the US due to trade tariffs. We do have to be cognizant of the fact that China holds very high stocks of wheat (Figure 3), holding more than half the world’s wheat inventory.

What does it mean/next week?:

At a local level, there is welcome rainfall forecast for WA, NSW & QLD. The forecasts of rainfall for NSW and QLD in recent months have had a worrying tendency to fizzle out. Let’s hope that this rainfall comes to fruition.

It would not surprise me if we saw additional tariff announcements by the US this evening. If we do, China will ramp up its tariffs shortly afterwards.

Falling throughput offers price support.

Posted on by Caitlin Dearden

Mutton and Restocker Lambs benefit most from a sharp decline in yarding levels this week across the East coast sale yards. Although, its Merino and Heavy Lambs that are currently top of the table when it comes to year on year price performance this Winter.

Figure 1 highlights the price moves this week at the East coast sale yards with most categories gaining 10-30¢. The Merino Lamb and the Eastern States Trade Lamb Indicator (ESTLI) were the only two categories to register a slight decline, finishing 0.5% lower at 651¢/kg cwt.

Don’t feel too bad for the Merino Lamb’s lacklustre performance this week as on a year on year basis prices are sitting 3.5% higher and a rampaging wool market are likely to keep Merinos in favour for much of this season.

The lack of Heavy Lambs in NSW and Victorian sale yards compared to this time last year is helping to keep prices supported. Heavy Lambs gained 12¢ this week to sit at 659¢/kg cwt, 3.7% higher than this time last season. Indeed, over the last month, yarding levels of Heavy Lambs at Victorian and NSW sale yards have been running around 10% below the seasonal average and 30% under what they were during 2017.

Lower throughput was a pattern repeated across the broader East coast lamb and mutton markets this week with a 28% decline in lamb numbers (Figure 2) and a 47% drop in sheep numbers (Figure 3), to see both weekly throughput measures back under their respective seasonal average levels for the first time in nearly two months.

Below average Trade Lamb yardings in the West over the past few weeks is helping to keep prices supported in WA too with the WATLI 1% higher on mid-week price quotes at 634¢/kg cwt. Although the big news in WA sheep circles this week was the worrying announcement by Livestock Shipping Services (the second largest live sheep exporter out of WA) that they are placing a temporary halt on their Australian operations and focusing on the South American live sheep trade.

What does it mean/next week?:

The rainfall forecast for the week ahead points to some moderate falls for Eastern NSW, South East Queensland and WA, but little elsewhere. It’s probably not enough to get prices surging but if the dwindling supply continues that should provide enough support to keep prices reasonably firm in the short term.

Small but powerful.

Posted on by Caitlin Dearden

Sometimes good things come in small packages. Well at least was the case in the wool market this week. Fremantle was on recess again, leaving the East Coast to carry the weight and deliver the smallest national offering in nine years at just 20,904 bales. As a result of the lower supply, prices rallied to new heights.

The Eastern Market Indicator pushed a whopping 52 cents higher on the week to settle at 2,073 cents AU$ terms. This was 46 cents, or 2.3%, above the record reached at the end of May (Figure 1). This week saw the Australian dollar fall even further. At 0.73, its trading at 2.6% below levels seen this time last year and at a level we haven’t seen since December 2016. This kept the price of our wool from a foreign buyer’s perspective stable, which closed the week slightly softer at 1,526 US cents.

Those that had wool to sell had confidence in the strong market. The pass in rate was at 2% which meant 20,685 bales were cleared to the trade.

All categories of Merino fleece posted gains on the week. Fine fibres of 18 to 17 micron saw rises in the range of 20 to 80 cents. Medium fibres were the real winner, gaining 40 to 100 cents. The spread between 19 and 21 micron prices drifted wider, after last week we saw them settle in the same range.

The finer crossbred microns saw increases averaging 40 cents which have lifted the MPGs to all new highs. Broader crossbreds were relatively unchanged on last week.

Merino Skirtings gained 20 to 30 cents in the North but largely held to last week’s levels in the South. Merino Cardings also saw rises of 20 to 30 cents.

The week ahead

Next week is the final sale of the season and all 3 selling centres will be back in operation. A total of 32,528 bales are rostered for sale, significantly lower than the last sale of the 16/17 season. We don’t tend to see prices push higher in the last sale but that being said this season has been anything but typical.

Cow prices responding to margins.

Posted on by Caitlin Dearden

Cattle markets continue to defy the dry weather, remaining steady for another week despite supply picking up. In general, prices were steady but there are signs of things turning around in the short term thanks to weakening supply.

With a bit of rain about through Victoria and parts of southern NSW and SA over the last 10 days, some producers look like they are taking a wait and see approach, and pulling back supply. It shouldn’t be too hard for supply to weaken either, as there are still not that many cattle out there.

Figure 1 shows the Eastern Young Cattle Indicator (EYCI) yardings rising after the Queen’s Birthday holiday, but remained below last year’s levels (Figure 1). Yesterday at Dubbo, one of the driest areas, 2240 head of young cattle sold for 525¢/kg cwt. This was 45¢ above the EYCI itself and shows that there is still some demand out there for young cattle. The EYCI was basically steady this week (Figure 2) as the market continues to take stock.

Amongst a lot of largely steady prices this week, the Cow indicators in Victoria, Queensland and NSW stood out. All three Medium Cow indicators gained ground. NSW the least, up 17¢, and Victoria the most, up 48¢. Matt’s article from earlier in the week outlines pretty clearly why Cow prices are up, processors can afford to bid up given current margins. Saleyard Cow prices merely returned to where over the hooks values are.

In WA prices rebounded back above 500¢ to make the WA average price the most expensive in the country. The Western Young Cattle Indicator sits at 517¢, still 80¢ below the same time last year.

The week ahead

There is some reasonable rain forecast for South East Queensland over the coming week. This should see further support arrive for cattle prices and young cattle in particular. The Roma Store sale averaged 465¢/kg cwt this week, and it was the biggest contributor to the EYCI. Rain in that area should see the EYCI rally.

Teetering on the edge

Posted on by Caitlin Dearden

It was a big week in the grain markets with the release of crop forecasts from the US and Australia. The market teeters on the edge of a bull market causing a high degree of volatility. In this weeks market comment we take a look at the A$, futures and new crop basis.

The futures market has been volatile this week (Figure 1), with Chicago spot futures trading in a range of 501.5-534.5¢/bu. The market is currently at $5 below the close on the last Friday. The midweek rally was as a result of the generally bullish data in the WASDE report, especially the sudden fall in Russian production estimates. Gravity, however, had its impact on the market, with traders digesting the WASDE report with concerns related to high ending stocks and uncertainty in the Russian seeding numbers.

Our greatest concern at present for Australian wheat producers and consumers is the conditions locally, especially in NNSW & QLD. In these regions, the crop has gone into minimal soil moisture and received little in the way of meaningful rainfall. The domestic demand in these areas is high and the likely drop in production will be a primary driver of basis on the east coast.

In Figure 2, the new crop basis levels are displayed and we can see the strong increase in levels in the past month as conditions show little sign of improvement. A higher basis level indicates that we should be considering selling physical, however at this point in time, production risk is too high in most places to consider substantial volumes.

The A$ has taken a nose dive in the past day (Figure 3). This was a result of weak Chinese economic and neutral Australian employment data. A lower A$ makes our export commodities more attractive versus competing origins, on the other hand, it makes our inputs more expensive in local terms.

What does it mean/next week?:

The June/July period tends to have a high degree of volatility as the northern hemisphere heads for harvest. This year with supply and demand teetering on the edge of a neutral/bullish market, it will not be unexpected to see large swings in pricing on futures.

The big risk is to the Australian crop and with the BOM forecasting a drier than average 3 month period, we need to take this into account in our marketing plans.