Tag: Articles

A nation embarrassed by a lack of rain

Posted on by Caitlin Dearden

The Eastern Young Cattle Indicator (EYCI) continues to trek lower as cattle yardings reach a five-week peak, underpinned by high NSW cattle throughput. The EYCI closed this week 1.1% lower at 466.5¢/kg cwt, while its Western counterpart shed 3.2%. Despite the bigger fall in WA young cattle prices, producers there are still enjoying an 11% premium over their East coast neighbours, with the Western Young Cattle Indicator (WYCI) closing the week at 523.75¢/kg cwt.

East coast cattle prices were posting slightly mixed signals at the close of the week with Trade and Heavy Steers gaining 1-2% while the Medium Steer, Medium Cow and Feeder Steer Indicators softened between 1.5% to 4%.

Across the east coast states, cattle prices reflected either the presence or lack of rainfall during the week. In Queensland most cattle categories were flat on the week, except for Trade and Heavy Steers, acting as market book-ends. QLD Trade Steers are finding it tough with a 5.1% drop to 256¢/kg lwt, while QLD Heavy Steers posted a 2% gain to 261¢/kg lwt. NSW cattle categories are mostly 1-2% softer, with NSW Trade and NSW Restocker steers bucking the trend to see them gain 1.5%. In Victoria, gains were noted between 1-4% for all categories of steer, but Vic Medium Cow was the only disappointment to producers – off 4% to 169¢/kg lwt.

The dry conditions prevalent in NSW and Southern Queensland  pushed additional cattle to market this week and is underpinning the 23% lift in east coast cattle throughput to nearly 72,000 head – figure 1. NSW sale yard yarding levels are remaining the key driver of the higher east coast throughput with a 27% surge in numbers this week to sit just shy of 37,000 head (Figure 2).

The rainfall deciles map for May highlights the plight of cattle producers across much of the country in the past month. Victorian and Tasmanian regions were the only parts of the country to see reasonable areas of average to above average falls, and hardly any below average areas present (Figure 3.) This was a stark contrast to the rest of the nation – and perhaps a mostly red continent embarrassed by a lack Autumn rain.

What does it mean/next week?

The three-month rainfall outlook released by the Bureau of Meteorology yesterday doesn’t paint a great picture for NSW, SA, Northern Victoria and Southern Queensland. Much of the South-East corner of the nation is set for a dry Winter so don’t hang your hopes on a recovery in cattle prices in the near term.

Flatlining retail lamb prices leaving saleyard upside open

Posted on by Caitlin Dearden

Since hitting a peak back at the start of the year, lamb prices have eased and found somewhat of a base around the 600¢/kg cwt mark. We know that strong demand has been driven by export markets, but there appears to be a limit to how much the local consumer is prepared to pay for their lamb.

Retail red meat prices have flatlined for over a year at the top of the historical range. Driven by high livestock prices and competition from export markets, retail lamb reached a record of just over $15/kg back in January 2017.

Since then, retail lamb prices have basically tracked sideways (figure 1). Chicken prices have also been steady, while the March quarter saw beef prices record a 1% increase to set a new all-time high of $19.51/kg.

Retail lamb has spent the last three quarters at close to a 180% premium to the chicken price, a similar level it reached at the end of 2012. Compared to beef, however, lamb remains relatively cheap at the retail level, at a 23% discount.

When lamb price peaked in 2011 they got within 5% of beef prices at the retail level, and this saw some consumer resistance and subsequent weaker domestic demand. Despite being cheap relative to beef, the strong premium to chicken, and pork, might have put a lid on how much further retailers can push prices.

With the retail lamb price being steady in the March quarter, the falling Eastern States Trade Lamb Indicator (ESTLI) is seeing the lamb price making up a smaller proportion of the Retail Price. Figure 3 shows the recent decline in the saleyard price has the ESTLI back at 41% of the retail price. Around 40-41% has been the low since the start of 2017, while the ESTLI has been as high as 45%.

What does it mean/next week?:

The fact that retail lamb prices have been steady for the best part of a year suggests that consumers are now relatively comfortable with the record values  This is good news for saleyard lamb prices.  However, lamb is priced at a historically comfortable level relative to beef and is expensive compared to chicken. The concern for lamb retail prices will come if the lower cattle values we are seeing flows through to retail level. Lower retail beef price might put some pressure on domestic lamb demand.

There is a little room for saleyard lamb prices to improve relative to the retail level, so there is some upside potential.  Importantly, retail lamb prices can also fall without necessarily taking saleyard lamb prices with them.

Another week, another 400k lambs exit the system

Posted on by Caitlin Dearden

After the TFI fire in January, you’d have been thought crazy if you said that weekly east coast lamb slaughter would spend most of May above 400,000 head. Even crazier if you said sheep slaughter would be 30,000 head higher than last year, yet here we are.

The confluence of strong lamb and mutton demand, and drought-induced strong supply has seen Victorian and NSW processors killing many more lambs and sheep than last year to keep up. East Coast lamb slaughter has never been above 400,000 head for three weeks in a row (Figure 1). It’s also been five years since this many sheep and lambs have been slaughtered in May.

Saleyard reports suggest the supply of finished lambs might be starting to wane, and this saw the Eastern States Trade Lamb Indicator (ESTLI) gain 18¢ to close at 619¢/kg cwt on Thursday, the highest price since March (Figure 2).

As we move into June, it is now that prices don’t look that great. Historically, anything over 600¢ is a good lamb price, but it’s becoming the norm in June. This will be the third year in a row, albeit prices are still around 10% behind the 2017 June price.

Mutton prices gained a little ground, with good mutton making over 500¢/kg cwt, and the average at 469¢.  It wasn’t that long ago that $5 was a good price for lambs.

Over in the west, trade lambs were up 20¢ to 626¢/kg cwt, not quite matching Victoria at 630¢ but still very strong. WA mutton is lagging well behind however, at 390¢, but some good recent rain might help this.

The week ahead

Some of the 7 and 14-day rainfall maps are starting to show some precipitation for NSW.  No guarantees, but if it eventuates we can expect a decline in sheep supply. This might coincide with annual plant maintenance shutdowns, but we still expect prices to strengthen over the coming month.

“I would rather be selling than buying in this market!”

Posted on by Caitlin Dearden

Who would have thought that 2,000 cents were possible for the EMI, or that only the 25 MPG and broader would sit below the 2000 cent level?

This wool selling season the EMI has lifted a massive 38%. In June 2017, it was quoted by AWEX at 1472 cents and this week settled at 2027 cents.

At the Campbelltown Show last week (by the way it was the 180th consecutive show, a fantastic effort by present and past show presidents and committee to achieve this over such a long time), a story was recounted to me that a couple of years ago at an AWI meeting one of the members suggested that 2000 cents was possible in 2018!

He was told by others at the meeting that while possible, don’t tell anyone because it sounds too far-fetched!

This week another small offering came forward, with just 30,329 offered to the trade. At a pass in rate of 2.3%, this meant 29,729 bales were cleared. This is 11,000 bales fewer than the weekly average of almost 41,000 bales for this season.

AWEX reported that buyers “had to work hard” to secure their volumes, and showed little regard for style and specifications. As supply has declined the discounts from earlier in the season for lower style and spec wool have declined.

It was also a new record for the EMI this week in US$ terms, breaking the previous level of 1504 set in June 2011, the increase this week of 32 cents pushed the US$EMI to 1,533 cents (Figure 1). The Australian dollar had a stable week, trading at US$0.757.

The Western Market Indicator (WMI) rose 48 cents on the week to post another record of 2167 cents.

To add some perspective, on this selling week, 20 years ago (1998) the 19 MPG was 945 cents and the 21 MPG 639 cents; they have lifted 147% & 254%, respectively (Table2).

Fine wool volumes have risen relative to the rest of the clip over this period and consequently, medium merino wool has declined. This is reflected in the price movements with the larger % improvements across the traditional medium to broad MPG categories.

The stand-out performer over this period is the Cardings sector; a 340% lift over 20 years is quite remarkable and signals strong demand for shorter wool.

The week ahead

Fremantle market has next week off, so only 27,270 bales are rostered, with 32,000 and 26,000 listed for selling weeks 50 & 51.

We are in unchartered waters so predictions are difficult, but it is hard not to be excited by this market. As a knowledgeable wool person in Tasmania said, “I would rather be selling than buying in this market!”.

The Russian Steamroller

Posted on by Caitlin Dearden

In recent years our comrades in Russia have been the most important driver of the wheat market. Their technology and logistics have improved to ensure that they are efficiently (& cheaply) producing a huge exportable surplus. When there is a hiccup in this region, the impact is felt around the world. In this comment, we look at the past weeks performance, and specifically what is happening in Russia.

The weather market is in full swing. Last week saw the market lose most of its early month growth, only to post a very strong turn around (Fig 1). At present, December wheat futures are up a$9/mt since the close last Thursday.

The rise in the market can be attributed to poor weather conditions in Australia (more later) and Russia. The Russian wheat growing regions have experienced warm and dry conditions over the past fortnight. These dry conditions in conjunction with limited forecast rain has resulted in concerns mounting. The Russian wheat crop has been down grade with estimates from 70mmt to 77mt, this is a huge drop from the 17.18 record of 84-85mmt.

It is important to put this downgrade into perspective. In figure 2, Russian wheat production since the end of the USSR to present has been displayed. The estimates for this season are displayed in orange. Dependent upon analysts estimates, Russian could produce either the 2nd or 3rd largest wheat crop. It is also mindful to remind ourselves that the average crop for this decade is 58mmt, or 54mmt if you don’t include the past season.

At a local level, the Australian crop remains on the precipice. There has been some meaningful rainfall in parts of central and northern WA, however initial reports are that the great southern and Esperance have largely missed out. The weather forecast has led to a fall in basis levels (figure 3), from the week prior, albeit they remain at attractive levels.

What does it mean/next week?:

The most important factor for Australian producers and consumers of wheat is the local weather. The 8 day forecast for NNSW & QLD remains bleak, and this is where the largest concentration of domestic demand is situated. The continued poor conditions could lead to the incredible high old crop values persisting into the new marketing season.

The negotiations between the US and China will be of interest. Although not set in stone, China have agreed in principle to purchase US$25bn of US agricultural products per annum. It is not clear when this will commence, or what commodities they will accumulate.

Cows rising against the young cattle trend

Posted on by Caitlin Dearden

After a brief respite in the downward trend, young cattle prices continued their drift lower this week.  With grain prices on the up, hay in short supply and more depressing forecasts it is no surprise that sellers are taking advantage of what are relatively strong prices.

Young cattle yardings moved to a five week high this week, with EYCI saleyards selling 19,854 head (figure 1). The result of stronger yardings was a fall in price, the EYCI lost another 18¢ to hit a new three year low of 472¢/kg cwt (figure 2).

The lower prices were largely driven by restocker supply increasing and demand weakening. The NSW Restocker Steer Indicator hit 252¢/kg lwt this week, 24¢ below the feeder indicator and 19¢ off the Heavy Steer. There are plenty of little light weaners on the market at the moment, and buyers aren’t exactly lining up.

There was one shining light  Medium Cows in saleyards gained ground in Victoria, NSW and Queensland, pushing the National Indicator 13¢ higher to 370¢/kg, cwt a six week high.

In WA markets are stronger than on the east coast, with the WYCI sitting at 536¢/kg cwt and Cow prices at around 400¢.

Export prices were steady to slightly weaker this week, the strength in the Aussie dollar saw the 90CL Frozen Cow fall 1¢ to 586.5¢/kg cwt. If it does ever rain the market will have some catching up to do.

The week ahead

There is some more rain forecast for Victoria and the border with NSW this over the coming week. While not enough to constitute a break it might be a start when added to last week’s rain, and importantly, if there is more to come.

The three month forecast is not all that positive for dry parts of NSW, and looks dire for WA. For east coast values to rally, somewhere near median rainfall would be needed over the winter in northern NSW, and there is a 40% chance of that. In WA, there is only 25-40% change of median rainfall, which will raise concerns for grass and grain supplies in the West over the coming year.

Prices succumb to elevated supply

Posted on by Caitlin Dearden

In the commentary last week, we noted that demand for lamb and sheep was keeping sale yard prices supported. Alas, it seems that supply has got the upper hand this week with East coast prices broadly softer. The Eastern States Trade Lamb Indicator (ESTLI) off 2.5% to 601¢/kg cwt and East Coast Mutton shaved off 1% to close at 469¢/kg cwt.

Table 1 outlines the price movements at the East coast sale yards, with Merino Lamb the only category to hold its ground this week. A booming wool price is helping to keep them in favour – perhaps. Restocker Lambs are feeling the weight of the extended dry Autumn, particularly in NSW, posting the greatest decline to see it off 3.1% to 550¢/kg cwt.

State based sale yard indicators for Restocker Lambs are clearly identifying NSW as the key culprit in dragging down the East coast indicator with NSW Restocker Lambs off 10.1% in mid-week sales to see them hit 542¢/kg cwt.

The seasonal pattern for East coast lamb slaughter is continuing to hold above 400,000 head – Figure 1.  Average lamb slaughter levels for the last month across the East coast are trending 12% above the five-year seasonal average and 14.5% higher than over the same period last season. The persistent elevated supply is getting the upper hand this week to act as a headwind on prices. A similar story for mutton, with East coast slaughter levels for the last month 7.1% higher than the seasonal average and 31.4% above the same time frame in 2017 – Figure 2.

What does it mean/next week?:

The most widespread rainfall for the last month or so is forecast to hit the south of the country in the upcoming week, with some decent falls noted for the West Australian coast. Victoria and Tasmania continue to receive some reasonable falls but NSW still yet to benefit in earnest, with most regions in NSW lucky to get 10mm.

It’s hard to see prices gain too much traction with supply remaining so elevated, and the rainfall forecast isn’t providing a great deal of confidence that supply can ease. This suggests sideways price action to continue this week with a slight downward bias evident.

Where are the winter lambs coming from?

Posted on by Caitlin Dearden

Winter officially arrives next week, and with it, we expect lamb slaughter to decline from recent record highs. Traditionally lamb supply throughout the winter is sustained by the last of the old season lambs, and the arrival of new season spring lambs out of NSW in the second half of July.  With the dry continuing, we ask whether these lambs will finished on time, and whether they’ll be there at all.

Lamb supply has been exceptionally strong so far this year, and we know that it has been a factor of fewer lambs being killed at the end of last year and dry weather forcing some sales. We know that NSW becomes the major supplier as we move into winter. But as the dry in NSW continues, and grain prices rise, there is some doubt as to the number and condition of winter lambs.

Meat & Livestock Australia (MLA) have released the February MLA and AWI Wool and Sheepmeat Survey Report with little fanfare, and it gives us a few clues.

Firstly, the data in the Wool and Sheepmeat survey appears to be quite volatile. This is likely due to the number of sheep producers filling out the survey being around 10% of the total number of producers. It’s a good sample, but results can move around depending on who has time to do the survey.

The survey does show some interesting trends. Figure 1 shows the number of breeding ewes on hand for both Merino and ‘Other’. According to survey results, the Merino Ewe flock hit a seven year high in February, with just under 32 million head roaming Australia. This is a 19.7% increase on February last year, which seems a little over the top.

They do split the Merino flock into those joined back to Merinos, and those joined to ‘other’ rams. 22.1 million head (up 24% year on year) are to be joined to Merinos, and 9.8 million (up 10.4%) to be joined to other.

The ‘other’ ewe flock, which consists mainly of breeds used for lamb production, is down 9.4% on February 2017. The total number of ewes (Merinos and Other) on hand, as of February, to be joined to a breed other than Merino is down 1% on last year.

This tells us that there should be a lot more Merino lambs born this year, more first cross lambs, and less ‘other’ lambs.

The survey data on lambs born from November to February somewhat confirms the ewe data. November to February is the smallest lamb marking period, but it’s still worth looking at the data.  There were apparently 3% fewer lambs marked over summer (figure 2) compared to last year, but Merinos were up a massive 21% to 2.25 million head, and ‘other’ down even more, 27% lower at 1.04 million head. Around half the lambs marked from November to February were Merinos in NSW.

What does it mean/next week?

If we consider that there were apparently fewer ‘other’ lambs marked over summer, is suggests lamb supply at this time of year should be waning. Last week we concluded that a lot of NSW is likely to have been grainfed, so some of these lambs might have exited the system already.

More importantly, there are fewer ‘other’ ewes to producer the early new season spring lambs which appear in saleyards in July. These lambs would have been born in March and April on little feed, which doesn’t bode well for survival or growth rates. It suggests fewer and lighter lambs to fill the June, July and August supply void.

What’s on offer? Record prices but not much wool

Posted on by Caitlin Dearden

Another week, another record. The wool market was again lit up with green across the board. But where one wins, one must loose. We’re seeing the effects of what has been a remarkably strong season play out on supply, and this means buyers are having to fight it out.

This weeks offering was a hefty 6,310 bales lower than last week, with just 30,053 offered to the trade. At a pass in rate of 2.2%, this meant 29,392 bales were cleared. AWEX reported that lower yielding, lesser style wools were again prominent. Despite this, buyers were willing to pay up to secure stock, indicating an air of nervousness about the levels of supply.

The Eastern Market Indicator (EMI) gained 20 cents on the first day of selling, and lifted a further 19 cents on Thursday to close at 1893 in Au$. Smashing last week’s record to an all new high. Records appear to be the new norm for the wool market. The weeks rise was on par in US$ terms, increasing 39 cents to hit 1,501 cents (Figure 1). This was supported by a stronger Australian dollar, trading at US$0.757.

There was little variation in the market movements between microns this week. 50 to 80 cent increases were typical for 17 to 22-micron wools in Sydney and Melbourne, although fine wools were the stand out performer in Melbourne this week with gains up to 90 cents.

The Western Market Indicator (WMI) rose 39 cents on the week to 2119 cents.

Merino skirtings made an improvement on the week as well. Well-formed lines received gains of 60 cents. Cardings had a strong week as well with the indicators up on average 30 cents.

Crossbreds were the only category that failed to see prices increase all round. While the 26 micron rose 42 cents on the week, 28 and 30 micron fibres fell back in the range of 5 to 10 cents.

The week ahead

The roster for the next few weeks points to the offering remaining thin. Next week just 31,336 is on offer, while the following week, a skimpy 25,119. This is well under the offering during the same weeks last season.

If this week’s bullish market, driven by buyer uncertainty is an indication of how the market is feeling, we could certainly see it reach higher levels in the coming weeks.

Thank NZ for strong export lamb demand

Posted on by Caitlin Dearden

We recently had a query as to whether there was much seasonality in New Zealand lamb slaughter.  We have covered this before, but given New Zealand are our only major competitor in lamb export markets, it’s worth another look.

Australian lamb slaughter has some seasonality, with the five year average low month, July, coming in 18% lower than the peak in October.  In New Zealand they have real seasonality.  The lowest slaughter month of August is 75% lower than the peak in March.  That is, a quarter the number of lambs are slaughtered in August, than are slaughtered in March.

Figure 1 shows that January to March slaughter is usually very strong.  To put NZ into perspective, their January to March slaughter averages over 2.5 million head.  Australia’s highest slaughter month on record in 2.2 million head.

As well as illustrating annual seasonality, figure 1 gives us some idea as to why export demand for lamb has been strong this summer and autumn.  The falling NZ sheep flock and lamb crop has seen a heavy fall in lamb slaughter.  While January slaughter was similar to last year, February and March were down 19 and 14% respectively.

Lower lamb supply out of New Zealand simply means that prices are going to be higher there, which can see demand shift to Australia.  Heavy Australian slaughter has helped fill the hole left by New Zealand.

Lower slaughter has seen record lamb prices in New Zealand.  Figure 2 shows lamb prices for 17.5 kgs cwt lambs in NZ has been rising to record levels at a time of year when they normally hit their seasonal lows. Over the first five months of 2018 lamb prices have averaged 24% higher than 2017.

Sheep slaughter shows similar, but more pronounced seasonality in New Zealand.  Figure 3 shows monthly sheep slaughter.  The peak month of January is eight times larger than the lows of September.

What does it mean/next week?:

It seems whenever we look at New Zealand sheep and lamb its positive for our market.  In the short term we can expect export demand for Australian lamb to remain strong as New Zealand slaughter enters its seasonal decline.

Lower lamb slaughter this year might indicate the start of a flock rebuild, which in the medium term is negative for export demand.  Sheep slaughter has been stronger, which might will put a dampener of the flock rebuild, especially as there were supposedly fewer lambs born last year.