Tag: Articles

Record highs for retail beef but may not fall soon

Posted on by Caitlin Dearden

The latest retail meat prices quoted by Meat & Livestock Australia (MLA) pegged beef at a record high. The March quarter saw retail beef prices rise at a time when the price of cattle was weakening and hitting a 3 year low. Either retail beef prices are still catching up to cattle values, or retailers are making money again.

Figure 1 shows retail beef prices sneaking higher in the March quarter. The 1% increase in retail beef prices was modest compared to the rally in 2014 and 2015. Regardless, the 1951¢/kg retail weight price was a new record for beef prices.

As outlined in our lamb article a couple of weeks ago, beef prices are the most expensive of the major proteins, sitting at a 23% premium to lamb. Beef has been more expensive relative to lamb in recent times, and as such there shouldn’t be pressure coming on the retail prices from that quarter.

It’s interesting that the March quarter saw record retail prices, yet Figure 2 shows that the NSW Over the Hooks Trade Steers reached a two and a half year low. Retail prices did manage to ease a little when the fall in cattle prices started back at the end of 2016, but they have rallied slowly from there.

Figure 2 is a little deceiving, however. The fall in cattle prices still doesn’t have cattle prices back at the average proportion of the retail beef price. Figure 3 shows that the March quarter saw the NSW Trade Steer at around a 24% of the retail price.

The cattle price proportion of the retail price is a very rough proxy for retail margins. The higher the cattle price as a proportion of the retail price, the smaller the retail margin.

When the NSW Trade Steer was at 28-30% of the retail price, it’s safe to say retailers were struggling.  While the fall to 24% makes things a little easier for retailers, the cattle price proportion is still above the 21% average of the 15 years to 2015.

What does it mean? / Next week:

It seems the reason retail beef prices haven’t fallen back with cattle prices over the last two years is the fact that the cattle prices still haven’t fallen far enough to put retail margins back at historical levels. Additionally, lamb prices remain historically strong at the retail level so beef prices don’t necessarily have to fall to compete.

As outlined earlier this week, export beef demand is also very strong, and as such, there isn’t necessarily more beef on the domestic market which needs to be moved, and would encourage lower beef prices.

Elevated, but softening throughput supports prices

Posted on by Caitlin Dearden

The shortened week due to the Queen’s Birthday holiday saw cattle throughput soften to the lowest weekly level in over a month and a half across the East coast which provided a floor to most categories of cattle. The Eastern States Young Cattle Indicator (EYCI) gained a meagre 0.5% to close at 479.25¢/kg cwt.

East coast cattle yarding levels were 17% softer week on week to see just over 51,000 head change hands at the sale yard (Figure 2). While this is the lowest cattle throughput in six weeks, it still represents a level that is 25% higher than the seasonal average for this week in the year.

East coast cattle throughput continues to remain elevated due to high numbers of cattle continuing to present themselves at sale yards in NSW.  Indeed, every east coast state recorded below average yardings this week except for NSW, which still has cattle throughput running at levels at around 70% above the seasonal average for the last month.

Across the East coast, most cattle price categories posted improvements ranging between 1% to 9%, with East Coast Trade Steers the only category to record a price decline, dropping 4% to 283.9¢/kg lwt (Table 1).

On a side note, our article last Friday made mention of South Australian Restocker Steers that caught our attention posting a 50¢/kg live weight price. The efficient and helpful staff at MLA kindly confirming that this was a valid statistic, albeit somewhat of an outlier as this was based off only a single sale of restocker steers that week in SA.

Further West, young cattle prices eased under the $5 level midweek to see it just 2.5% above the EYCI at 493¢/kg cwt and in offshore markets, the 90CL eased slightly to hold above 570¢/kg CIF (Figure 2).

What does it mean/next week?

With limited rain on the horizon outside of Victoria and coastal WA next week its unlikely to see cattle prices gain too aggressively in the short term. On the flip side, a 90CL beef export price above the 550¢ region and reduced cattle supply as we enter the depths of Winter will continue to provide price support on any dips. Perhaps sideways price consolidation is the order of the day for cattle markets over the coming few weeks.

ESTLI closing the gap on last year

Posted on by Caitlin Dearden

The rain this week probably wasn’t as good as might have been expected. However, whether it’s the rain, or simply declining supply, good lamb prices are rallying and now sit just below the record levels of last year.

The Eastern States Trade Lamb Indicator (ESTLI) is finally making a run towards what could be called winter highs. The last three weeks have seen the ESTLI gain 54¢, or 9% to hit a five-month high of 654¢/kg cwt. Figure 1 shows the ESTLI sitting just below the same time last year, the first time in four months it has even been close.

As we would expect, it seems to be tight supply pushing the market higher. Lamb slaughter is trending down, as shown in Figure 2. This was helped last week by seasonal maintenance slowdowns in South Australia. The major slaughter states of NSW and Victoria have only seen slaughter rates decline marginally.

Mutton prices were steady this week, and unlike lamb values, are still 10% behind the levels of this time last year. This should really be no surprise given sheep slaughter is still running 37.5% above the same time last year. Sheep yardings are also still well ahead of last year’s levels.

In the West lamb and sheep prices were steady this week, both at levels behind the eastern states. WA values are still well behind last year’s levels, but there is still some upside with export demand running strong.

The week ahead

The bit of rain which has fallen isn’t going to be enough to finish autumn lambs, there will have to be some follow up. We might see the flow of female or merino wether lambs for a few weeks however, as growers take a wait and see approach. This leaves a nice supply gap over the coming weeks, and possibly rising prices if there aren’t too many more maintenance shutdowns.

A narrowing gap in mid microns

Posted on by Caitlin Dearden

The wool market mended last week’s losses to see a general lift across medium and coarse fibres.  Buyer attentions were again diverted away from the finer microns, which saw the price differential between medium and broad microns narrow significantly.

The Eastern Market Indicator rose 10 cents on the week to 2,021 cents in AU$ terms.  This was reversed in US$ terms, dropping 10 cents to settle at 1,528 cents (Figure 1). Fremantle returned to sale this week and played its part in the strength of the market, with the Western Market Indicator pushing 21 cents higher to 2,188 cents.

With the West back into play, there were 28,029 bales on offer. The pass in rate was barely unchanged at 3.4%, meaning 27,076 bales cleared to the trade (Figure 2).

Fine fibres between 17 to 18.5 micron were subject to losses averaging 10 to 20 cents. It was clear from the outset of trading that buyer interest was on the broader categories. 19 to 22 micron fibres saw price rises of between 10 and 40 cents on the week. The spread between medium micron categories has been narrowing from the highs early in the season and this week by the end of the sale, the difference between 19 and 21 micron in the south was non-existant, both settling at 2295 cents (Figure 3). AWEX noted that in some cases, coarser lots were actually receiving better prices than similar wool with a finer micron.

Results for crossbred wools were mixed. 26 micron pushed up to 20 cents higher while broader categories saw falls down to 10 cents.

Merino Skirtings saw a similar outcome to fleece with finer microns seeing lower prices in the range of 20 to 40 cents while broader microns managed to find some support to rise 10 to 20 cents. Oddments were again in short supply which saw the cardings indicators rise on average 4 cents.

The week ahead

Fremantle is taking another break next week leaving just 21,326 bales rostered for the second last sale of this season in Sydney and Melbourne. The final week of sale currently forecasts 33,810 bales on offer.

CBOT up as a start to the season appears

Posted on by Caitlin Dearden

Chicago Soft Red Wheat managed to maintain its upward trend this week. It had an attempt at moving lower but bounced stronger on Wednesday night. Local wheat prices also tried to go lower but found strength on Thursday.

Figure 1 shows CBOT wheat in AUD/t sitting just below the highs hit at the end of May. Still, $267/t is close to the best swap price we have seen for the December contract since 2015. The market did move a little lower earlier in the week before recovering. Apparently there was some speculator profit-taking triggered by the higher levels, and the Aussie dollar found some strength this week.

The AUD is actually back at 76.5US¢, its highest level in six weeks thanks to some stronger economic data.

Locally wheat prices followed CBOT’s trend, finishing the week on a high. While new crop APW basis in the Newcastle zone is at around $100/t basis, in the south it’s close to $50/t (Figure 2). If crop prospects continue to weaken Geelong basis could rally to $80-100/t as well, so at $320/t it could end up being cheap.

Old crop markets continue to tighten, with any remaining grain being held tight, and buyers having to pump up prices to get hold of it. A good rain and some grass growth might take some of the pressure off demand, but supply relief won’t turn up until the new crop arrives; if it does at all.

The week ahead

Figure 3 shows some good rain forecast for Victoria and southern NSW this week. In fact, most of the Mallee, parts of the Riverina and SA are expected to get their monthly average rainfall over the coming 8 days. This will give crops a start, but with no subsoil moisture, follow up will be required before the heat comes out of markets.

Another two year slaughter high but prices rise

Posted on by Caitlin Dearden

Another week and another high for slaughter rates. It seems, however, supply may have eased a little this week, as the Eastern Young Cattle Indicator managed to gain ground for the first time in a month and posted its biggest gain since March.

Figure 1 shows cattle slaughter ramped up again in the week ending Friday the 1st of June. It was in May 2016 when east coast cattle slaughter was last over 150,000 head. Last week slaughter didn’t quite eclipse the 2016 level but was the second highest weekly slaughter since the end of 2015.

Queensland slaughter was relatively steady last week. It was NSW and Victoria where rates jumped, as winter arrived with no real precipitation.

This week the EYCI gained 10¢, which is its best effort since March, to finish Thursday at 476.5¢/kg cwt.  The market will have to gain another 20¢ before we can say the downward trend has been broken.

We might be starting to see the winter doldrums for young cattle supply. The 15,000 head young cattle yarding this week was the second lowest for a full week for the year.

Most of the state indicators were steady to slightly higher this week. One number which caught our eye was restocker steers in SA at 50¢/kg lwt. Hopefully, this was a typo.

In the west, young cattle prices eased, with the WYCI down 11¢ to 532¢/kg cwt. It rained in the west during the week, so at this time of year prices probably shouldn’t be falling. They might bounce back this week.

The week ahead

There looks to be some rain on the way for the Riverina, which might offer a start to the season if it’s followed up within a couple of weeks. This might at least halt some of the supply of young cattle as grower elect to take a wait and see approach.

Southern WA is set to get some more rain, so it’s hard to see prices dropping much further over there as supply is traditionally tight at this time of year and rain will only make it tighter.

And so, it begins…

Posted on by Caitlin Dearden

The most recent update to the ABS cattle slaughter data shows a jump in the ratio of female cattle slaughtered as a proportion of the total kill. The average annual ratio now sits at 48% signifying that we are technically in a herd destocking phase.

The rainfall deficiencies map for the last three months provides an insight into the driving force behind the increased cull ratio of female cattle with severe deficiencies impacting producers in much of NSW and Southern WA – Figure 1.

Average monthly ABS cattle slaughter figures for the first quarter of 2018 sit 10% below the five-year first quarter pattern. However, the five-year average figure is somewhat distorted by the very high turnoff experienced between the very dry 2014 and 2015 seasons – which was in excess of 9 million head per annum.

An assessment of the five-year first quarter average slaughter levels with the 2014 and 2015 seasons removed shows that the current slaughter levels for the first quarter of 2018 are right on average, at around 1.77 million head per quarter.

While the total cattle slaughter numbers are not unusually high, there has been a noticeable change in the types of cattle being sent to meatworks in recent months. As shown in Figure 2, the ratio of females slaughtered as a proportion of the total kill has increased significantly since the start of the season.

Indeed, the female slaughter ratio has gone from the lower end of the normal range in January at 43.5% to the upper end of the seasonal range in April at 52.6%. The April female slaughter ratio is now nearer to levels experienced during the 2014 and 2015 seasons herd liquidation phase, which peaked at 53% during the winter of these years.

What does it mean?  

The surge in the percentage of females slaughtered as a proportion of the total kill in recent months has lifted the annual female slaughter ratio to 48% for the 2018 season. A female slaughter ratio above 47% is generally considered to be reflective of a herd liquidation phase.

During 2014 and 2015 the average female slaughter ratio from January to April was 50.6% and 50.3% respectively, compared to 48% for the current season. This suggests the liquidation experienced so far this year hasn’t been as pronounced as the 2014/15 phase.

However, the three-month rainfall outlook for winter released by the Bureau of Meteorology last week (Figure 3) points to a much drier than normal period ahead so it is difficult to see the female slaughter ratio backing off too much in the coming months.

Prospect of rain brings a price gain

Posted on by Caitlin Dearden

For the first time in a while, there is the prospect of 25-50 mm of rainfall into parts of southern NSW desperate for some relief. Falls are expected to extend into South Australia and Victoria and this has encouraged a drop in lamb throughput levels this week from the elevated trend we have seen during May, in turn providing a boost to lamb prices.

Table 1 highlights the sale yard price movements across the east coast, with gains between 2-6% noted for all categories. East coast Restocker Lambs are benefiting most from the wet forecast with a 6.1% lift to see it back above 600¢. The Eastern States Trade Lamb Indicator (ESTLI), not quite as robust a performance but still a respectable 2.7% lift to close at 636¢/kg cwt.

Figure 1 outlines the Bureau of Meteorology’s forecast for the coming week in terms of rainfall and although a long way yet from satisfying the parched areas of NSW, it’s a welcome relief. Lighter falls of up to 10 mm are expected to extend to northern NSW but the bulk of the rain will centre upon Victoria and the southern regions of NSW and South Australia.

The wetter outlook seems to have weighed on east coast lamb throughput this week which staged a 13% decline (Figure 2). This brings lamb throughput back in line with the seasonal average levels for this time of year and is 8% softer than for the same week last season. East coast lamb yardings are now back to more normal seasonal levels after spending much of May above the usual range.

In contrast, east coast mutton throughput remains elevated, underpinned by persistently high NSW mutton yarding levels. Indeed, NSW mutton throughput currently sits 105% over the seasonal average for this time in the year with over 63,000 head changing hands this week at NSW sale yards.

What does it mean/next week?:

The rain due this week should continue to provide support to lamb and sheep prices in the short term. The prospect of supply beginning to tighten as we head further into winter should keep prices fairly robust into the coming few months.

An end to the winning streak for some but not all

Posted on by Caitlin Dearden

For the last month the wool market has gone from strength to strength, but alas, the upwards stream has come to a halt. That is, unless you look from a US$ perspective. Despite the small offering due to no sales in Fremantle, most categories retracted from the outset on Tuesday.

In Australian dollar terms the Eastern Market Indicator (EMI) pulled back 16 cents on the week to close at 2,011 cents. The news wasn’t all bad though, the Aussie dollar lifted back above US$0.766 during the week on the back of strong GDP data to trade at a six-week high. This lent to the EMI in US$ terms lifting 14 cents to hit a new record of 1,547 cents on Wednesday, only to retract back 6 cents to 1,538 cents on close (Figure 1).

26,942 bales were offered to the trade this week from the two sale centres. This was the smallest offering that we have seen this season. 3.6% of the offering was passed-in, meaning 25,973 bales were cleared to the trade.

Finer microns experienced the largest losses in the falling market. 17 to 19 micron wools were down on average 40-50 cents in both Sydney and Melbourne. AWEX reported that 21 micron and coarser wool attracted very strong demand. As a result, medium fibres saw negligible drops to 15 cent gains across the market.

Most crossbred categories experienced slight corrections of up to 15 cents. Merino skirtings were not exempt from this week’s losses, generally declining 20 to 40 cents.

Unlike previous weeks, buyers weren’t willing to stand for poorly prepared lines. Discounts were received on lower style and spec lines.

Cardings were in short supply and managed to hold onto last week’s prices.

The week ahead

Next week we are back to a full roster with sales in Sydney, Melbourne and Fremantle. 28,956 bales are expected for week 50 of the selling season (Figure 2).

Volatility in the US not impacting here -yet

Posted on by Caitlin Dearden

The wheat yo-yo continued in the US as they approach harvest. Chicago Soft Red Wheat rallied to new highs this week, before easing back again. The charts are pointing to more upside, but supply will soon start rolling in.

It was all up for CBOT wheat late last week, but after the long weekend in the States, some profit taking and pre-harvest grower selling sent values back to 574¢/bu.  In our terms, Dec-18 reached $285/t, before finishing yesterday at $272/t.

Figure 1 shows the classic rising price trend. Wheat prices are making higher highs and higher lows. At some stage, the market will make a lower high, which signals the end of the rally.

Wheat prices are trying to come to terms with this year’s lower production, but there has been a lot of speculator activity on the buy side. This might dissipate when harvest starts rolling in.

The latest US crop condition report has 38% of the wheat crop in good or excellent condition, compared to 50% last year. Poorer condition means lower yield, how much lower is the question.

Locally things were relatively steady despite the fluctuations in the US. The spreads of recent years remain in place, with price ranging from $355 at Newcastle for an APW Multigrade, to $296/t at Port Adelaide.

Canola prices in Canada have steadied at around $550/t in our terms. In quite an unusual quirk, new crop canola prices are still at a negative basis to ICE Canola. Yesterday’s Geelong Canola price for 18-19 was $546/t, despite what should be dwindling production expectations.

The week ahead

There are some promising signs on some of the 7-14 day rainfall forecasts, which might get the crop going in NSW if it eventuates. It’s interesting that basis hasn’t really gone as crazy are you might expect given the dry, with new crop supplies expected to alleviate some the current supply shortages.

The is some potential for downside in international markets, but not too near the 220s of earlier this year.  Maybe back to $250/t during the wheat harvest, and if summer rainfall is good in the US there might be more downside.