Tag: Articles

Sheep not out there or growers holding strong.

Posted on by Caitlin Dearden

Lambs continue to flow to the market, keeping a lid on prices. However, mutton values have been on the rise and narrowing the gap, as despite the dry weather, the supply of sheep is either not there or being held tight.

Figure 1 shows that sheep slaughter remains well above last year’s levels, with the short week kill roughly equivalent to the full weeks this time last year. However, the usual autumn slaughter downtrend is in place as supplies remain similar to the five year average.

Lamb slaughter hasn’t been falling, it hit a peak in the week before Anzac day, and last week was 14% above the short weeks at Easter.

The result of lower sheep slaughter, and stronger lamb slaughter, is a narrowing gap between the pricesFigure 2 shows a mild upward trend for mutton since February, with the 10¢ gain this week pushing it to 437¢/kg cwt.

The Eastern States Trade Lamb Indicator (ESTLI) eased marginally this week, losing 5¢ but remaining above the lows hit a fortnight ago.

The mutton discount to the ESTLI has held above 40% for the last three weeks. Mutton isn’t as strong as the 20-30% spread seen this time last year, but given the season, the relative tight supply might tell a story.

Either there are not the sheep out there to sell in response to the dry weather, or growers are confident enough about prices, and profitability to feed sheep through the feed gap.

The week ahead

There is again a little bit of rain moving through Victoria. Enough to confirm a break in some areas where there are a lot of sheep, but likely not widespread enough to see sheep supply tighten dramatically. Lamb supply can’t really rise from here given the extraordinary levels we’ve seen, but prices could continue to track sideways for a little while yet before the winter premiums kick in.

More slaughter this year, but same later.

Posted on by Caitlin Dearden

Meat and Livestock Australia (MLA) released their quarterly projections this week, and while there were some revisions to this year’s projections, the next three years are expected to be largely the same as was projected in January. The herd growth is expected to be a little weaker, but it’s not really showing up in slower herd growth based on the MLA figures.

Figure 1 shows the only real major change in MLA’s projections since January, being the increase in slaughter for this year. The strongcattle slaughter to date has seen MLA lift 2018 slaughter by 1% to 7.475 million head. The lift in the slaughter projection doesn’t account for all the extra cattle slaughtered so far, and we think the annual number might be a bit higher than this projection.

While slaughter forecasts are still well below the bumper numbers of 2013-15, it is still the fifth highest of the last 10 years. The higher slaughter this year isn’t expected to result in fewer cattle coming to market over the coming four years. MLA have left forecasts for 2019-2022 unchanged, with the gradual increase in response to an increasing herd.

Similar to slaughter, MLA have left their projections for the size of the herd unchanged.  Figure 2 shows minimal change in the forecast growth in the herd. The Australian cattle herd is expected to grow by around 1-2% per year until it reaches a 45 year high in 2022.

It’s highly unlikely that the herd will grow in such a uniform manner, as seasonal conditions often throw projections out the window. The current dry spell is likely to see higher slaughter in the short term, slowing of the herd rebuild, and weaker slaughter in the medium term.

Carcase weights are also expected to grow after having a setback this year. Dry weather and lower numbers of cattle on feed should see average slaughter weights fall this year. MLA are expecting carcase weights to grow to a record high in 2022.

What does it mean/next week?:

As long as cattle remain relatively strong, the herd should continue to grow. The current very strong slaughter is still seeing cattle prices above the pre-2015 records, so we can say that cattle prices are still strong.

MLA obviously expect cattle prices to remain strong, as the herd and carcase weights wouldn’t grow unless there was an incentive to produce more beef. The slaughter projection for this year might be a bit low, and if we end up with higher levels, it should see lower slaughter next year.

Key Points

  • MLA’s quarterly projections show a small increase in 2018 slaughter, but no change in later years.
  • The herd and carcase weights are expected to grow to at least 40 year highs by 2022.
  • The stronger slaughter now might see annual rates surpass projections, taking cattle from the 2019 season.

A new hope in the wheat market

Posted on by Caitlin Dearden

The force is strong in the wheat market, with positive pricing signals coming forth. The northern hemisphere “weather market” period is always the most volatile time for pricing, with the majority of the worlds crop being in the growth phase. After six years of strong production, the weather strikes back.

The futures market continues to rally (figure 1), with its fifth straight session of gains. The market is now 12% up on the close of trade last Thursday. The annual tour of the Kansa wheat belt released the results from their annual crop tour, with yields forecast at 37bpa. Last year the yield was 47bpa, after suffering through terrible snow storms in early May, and the five-year average is 41bpa.

As Kansas is the largest wheat production area in the US, this has dire positive consequences for prices, and now there is limited potential for substantive increases in yield in this region.

The wheat market is now attracting the focus of the dark side, with speculators starting to pour money into ag commodities. In figure 2, the commitment of traders report from last week shows that since early February, bullish sentiment has increased, with the overall speculator position at -50k contracts, whereas short contracts were at -165k. The updated data on trades sentiment will be released over the weekend and will undoubtedly show a decrease in the short position.

At a local level, much needed rainfall fell across much of the country in the past 24 hours. This will bring relief to many, after a poor summer rain season for the most part. It is definitely too early to determine the outlook for the crop, but this rain for many will help. In figure 3, we can see that basis levels are remaining strong, as buyers continue to pay a premium for access to stock. If the potential for the crop improves in the coming months, then this premium is liable to deteriorate.

Was it turn-around week?

Posted on by Caitlin Dearden

The wool market opened the week with a continuation of the softer trend of last week, but on Thursday demand returned, and the market looked to have a completely different tone.

This was best reflected by activity on the Fremantle auction floor; the close of last week in Fremantle was definitely “bearish”, while this week it acted like the “bull”, closing strongly.

We take more notice of the Fremantle market when forming a view of next week’s market, with its 2-hour time difference a strong finish is positive for next week, while a weak finish doesn’t provide a lot of confidence going forward.

With a similar offering to last week of 42,794 bales, the Eastern Market Indicator (EMI) lost 10 cents to 1836 cents, while in US$ terms the EMI gave up 17 cents over the week to settle at 1381 cents (Figure 1). In the Fremantle sales, the Western Market Indicator (WMI) slipped 10 cents on the opening day before fully recovering on Thursday to end the week up 3 cents to 1952 cents.

The AU$ held steady around the US$0.75 mark, after slipping below the US$0.76 cent mark last week.

In line with the slightly softer market in general, the pass in rate lifted to 5.3%. The varied pass-in rate makes interesting viewing; in Sydney it was 3.2%, Melbourne 5.3% while in Fremantle, despite the stronger market, growers were prepared to pass-in 8.2% resulting in 40,500 bales eventually sold.

On the back of last week’s currency induced rally that provided wool sellers with new high’s, this week’s market can be taken as a positive with little resistance to the market levels despite the Wednesday easier market.

AWEX reports that buyers are finding it difficult to “average” their purchases with the increasing percentage of lower yielding and poorer style wools offered. Of course, this is making more attractive any lots that are of good style and yield. Again, these types were reported as attracting strong competition.

There was an interesting comment in the AWEX Sydney report on Wednesday; “19 microns and finer had good support for the Non-Mules and Pain relief lots”, perhaps reflecting specific demand for these wools. For some time, we have been interested in detecting any premium for non-mulesed or pain relief identified lots; this is a rare comment from AWEX that it was noticeable in the auction.

Crossbreds retreated after five weeks of positive gains, while the cardings were generally unchanged except for W.A. where the correction was a re-alignment with Eastern markets.

Skirtings were reported as steady for the week, although again the AWEX report contained a proviso that lots with less than 3% VM were keenly sought.

With just over 40,000 bales sold this week, (seasons average 41,868) we expect it will be difficult to retrieve sales above this level until the Spring. There are 38,200 bales rostered for next week, however the roster falls to an average of 35,000 bales for the following weeks. With the average clearance since January of almost 42,000 bales, the seasonal average can’t help but fall in coming weeks.

The week ahead

The market had a go at correcting the strong recent weeks, but by week’s end it was back to business as usual.

This along with tightening supply (38,000 rostered for next week) bodes well for the immediate future of wool prices in general.

Meet Angus Creedon

Posted on by Caitlin Dearden

Welcome to our newest team member Angus Creedon, Business Development Manager, based in Rockhampton, Central Qld. 

Angus is originally from Middlemount in Central Qld where his family has a Brahman stud and run a commercial cattle operation. After working on a local property for two years, Angus commenced a degree in vet science in Townsville but didn’t enjoy it, so he moved to Rockhampton and ran his own AI/Preg testing contracting business while also studying an Applied Science (Production Animal Science) degree externally through the University of Qld Gatton.

On completion of his degree, Angus joined Hewitt Cattle Australia at Emerald and then Moura in Central Qld.

Most recently Angus joined Elanco Animal Health as Territory Manager for Central & Western Qld, where he primarily dealt with rural merchandise stores and feedlots within a 400km radius of Rockhampton.

Angus’ hands on experience, combined with local area and market knowledge strengthens StockCo’s ability to deliver high quality, personalised service in Central Qld.

Learn more about the StockCo team here. 

Knife edge market

Posted on by Caitlin Dearden

This time of year, has typically been one of great volatility as the northern hemisphere commences harvest. This can easily be seen in the current market, where the weather is the major driver. The market stays on a knife edge, where every new piece of information is propelling the market.

The past week has been quite exciting in the grain market. The USDA release weekly crop condition reports, which has shown the lowest good/excellent condition since 2006 at 45%. This in combination with continued poor weather across the US has led to all futures contracts experiencing strong rallies of around 2-4% (figure 1).

The fear in the marketplace is largely centred around high protein wheats, due to deteriorating crop condition of spring wheat. This can be seen clearly in the ascent of the spread between the CME soft red winter wheat (SRW) and MGEX hard red winter wheat (HRW). The HRW contract is high protein with protein specs of 13%. In the past two months, the spread has increased dramatically (figure 2) to 180¢/bu on the spot contract. If there is a shortage of protein around the world, this could be some stronger local premiums for export protein.

In the past week, the WASDE and ABARES crop reports were released, however had little in the way of surprises. They do however each contain positive insights, and are discussed in more details on the following links:

Global wheat stocks have fallen and risen
The average ABARES

At a local level, the dry weather continues to paint a bleak picture for much of the country especially SA/WA. This has resulted in continued strength of APW basis levels in Adelaide & Port Lincoln (figure 3), which since harvest have remained quite stagnant.

Next Week

The US crop condition report is released this weekend. I wouldn’t be surprised to see spring crop conditions deteriorate further.

The recent rally has provided some good pricing opportunities to capture some strong basis around the country. It is worthwhile to consider your marketing options, one of which could be the sale of physical and the purchase of call options to continue to have exposure to the futures market.

Retail beef has found a peak

Posted on by Caitlin Dearden

It doesn’t matter how tight cattle supply is, beef still lies on a demand curve, where consumers will eat less beef as prices rise. While Australian beef prices are largely governed by export markets, the domestic consumer is still our largest single market for beef. This week we take a look at the latest retail meat values, and what this might mean for cattle prices.

The Australian Bureau of Statistics (ABS) recently released their retail meat price indices, which Meat and Livestock Australia (MLA) convert to average retail values for the quarter. Figure 1 shows the latest retail meat prices, which shows beef and lamb prices easing marginally.

Retail beef prices peaked in the December quarter, hitting 1939¢/kg retail weight, but eased 1% in the March quarter, to sit at 1920¢ (figure 1). Compared to its major substitute, lamb, beef remains at a strong, but not unusual premium. For the last 18 months beef has ranged between a 22 and 25% premium to lamb at a retail level, which is the highest level in 9 years.

There is precedent for beef to move to a stronger premium to lamb, which has been as high as 38% back in 2000. Similarly, we have recently seen beef at just a 4% premium to lamb, back in 2011 when lamb prices has a serious rally.

Retail chicken prices gained 1% in the March quarter, but remains exceptionally cheap compared to beef, and to a less extent lamb. In the September 16 quarter, beef was at a 265% premium to chicken, and this has eased marginally to 257% in the March quarter. Chicken continues to take market share from the more expensive meats, but it’s promising to see retail beef prices managing to maintain high premiums.

Figure 3 shows that easing saleyard prices in the March quarter might have helped retail prices ease a little. However, looking at indices of the retail and saleyard prices, we can see that saleyard prices remain expensive relative to retail values over the long term.

Key points:

  • Retail beef prices eased marginally in the March quarter, but remain historically high relative to other meats.
  • Saleyard cattle prices have fallen further than retail values, which may provide a little support.
  • There is still a lot of room for saleyard price to fall without retail values moving, so there may not be much relief for consumers.

What does this mean?

Beef prices remain expensive relative to other meats at a retail level. Cattle prices remain expensive relative to retail values. This means cattle prices have plenty of room to fall. If saleyard price move back to 25% of the retail price, it puts the trade steer indicator at 480¢/kg cwt.

It seems unlikely retail beef prices will fall in a hurry. Even during the very cheap cattle prices of 2012-13 beef prices only edged lower, so hopefully, for producers, the 450-500¢ level might be the bottom of the range of beef prices over the coming years. Consumers are not likely to get much relief at the checkout however, and export markets will have to soak up any extra supply that comes through.

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Cattle prices worse than last year, but who’s complaining?

Posted on by Caitlin Dearden

It hasn’t happened to the Eastern Young Cattle Indicator (EYCI) yet, but we have a few slaughter categories which have moved below year ago levels. It’s been a while since producers were getting less money than the year before, in fact it’s been three years, but is anyone complaining?

It’s been nearly two months of cattle prices tracking sideways, as just as the market seemed to avoid the usual autumn decline, the winter rally is taking it’s time to appear.

Figure 1 shows the Victorian Heavy Steer Indicator, which is a pretty good proxy for slaughter cattle on the east coast. Since 2015 there hasn’t been a week when the Vic Heavy Steer was lower than the previous year. In fact, we had to go back to February and March 2014 to find a time when the Vic heavy steer was lower than the year earlier. At that time the Indictor was at 310-320¢/kg cwt, just 5-10¢ below 2013 values. This week’s price was 557¢/kg cwt.

So is anyone complaining about prices? We can see from figure 1 that producers with heavy steer might be disappointed they didn’t sell a month ago, with the Vic Heavy Steer down 30¢ in that time. This equates to around $105/hd on a 350kg cwt steer, which hurts a bit.

In terms of the trade, if these steers were bought back 18 months ago, the EYCI was 600¢/kg cwt. Convert to live weight and add a bit of basis, and they might have cost around $1,000/hd at 300kg lwt. Selling this week as heavy steers they would have returned $1,950/hd. We’re not sure anyone is complaining about a $950/hd gross margin.

the week ahead

Seasonality suggests cattle prices are due to rally, and Matt’s analysis earlier this week on processor margins suggests there is room for slaughter cattle to begin their winter appreciation. Young cattle prices remain strong, as restocker and feeder demand is still robust enough (figure 2). We might see slaughter cattle rise without young cattle for a start. Although the very dry weather outlook for the next 8 days suggests we might be waiting a bit longer yet.

Buyers take a breather

Posted on by Caitlin Dearden

A reduction in lamb yarding this week along the East coast was met with broadly softer saleyard prices suggesting that buyers took a bit of a spell. The Eastern States Trade Lamb Indicator off a fraction, down 4¢ (or 0.6% lower) to 666¢/kg cwt. National Mutton a little softer, with sheep throughput holding firm, to see a fall of 11¢ (a 2.1% decline) to close at 511¢.

East coast lamb throughput dropping 15.9% on the week to register just over 157,000 head at the saleyard. Although yarding levels remain above levels recorded at this time last season and well clear of the five-year average so with that in mind prices remain at fairly good levels – figure 1.

Marginally softer moves for mutton in SA, Victoria and NSW as both sheep throughput and slaughter along the East coast trekked sideways – figure 2. In contrast WA mutton dragging down the national figures with a 10.2% fall to close at 441¢/kg cwt. Interestingly, Victorian lamb slaughter remaining persistently high for this time in the season (figure 3) suggesting Southern processors are getting their fill despite the relatively high prices.

The week ahead

A fairly dry forecast for the week ahead will limit price moves to the topside, while the looming winter tightening in supply and firm export demand should keep prices supported on any dips. The most likely scenario in the coming week is for continued price consolidation at these levels.

 

 

 

China wades back in despite higher A$

Posted on by Caitlin Dearden

Increased demand this week from exporters noted as Chinese buyers resume their activity, undeterred in the face of a higher A$. The EMI creeping back above 1500¢, up 28¢ to 1506¢ and gaining 31US¢ to 1146US¢. The Western markets resumed auctions this week and activity participated in the rally, making up for lost time with a 63¢ rise to see the WMI at 1567¢, up 58¢ in US terms to 1192US¢.

Price gains for most categories of wool noted, although the medium fibres leading the charge higher with gains of 50-65¢ noted for microns between 20 to 23 mpg in the East and 90-110¢ gains for similar wool in the West. The rally in finer wool limited to a 15-50¢ range in all three centres.

Interestingly, the medium fibres displaying a more robust price movement this time around with the 21 micron reaching levels in AUD terms not seen since the middle 1988. Indeed, in May 2016 when the 21-micron hit 1535¢ in the South the 17 mpg was trading above $23 and the 19 mpg was above $19.5. This week with 21 mpg at 1549¢ the 17-micron unable to climb above $22 and 19-micron can’t crack the $19 level.

Some whispers around the traps that if the Chinese step away again the fine end could be in for a quick correction. Although, the prospect of higher US interest rates later this year could continue to play into wool grower’s favour. This week the US Federal Reserve lifted rates and because this was highly anticipated it had limited impact on the A$. However, any sign that the US will move to a more tightening bias or indications of more frequent potential future rate rises in the US could see the A$ come under reasonable pressure again, pushing it back toward the 70US¢ level. A relatively softer A$ now compared to back in 2011/12 helping to keep wool prices competitive overseas, despite the high local prices – figure 3.

The week ahead

Next week on the Eastern centres have sales are scheduled, with Fremantle taking another recess, to see 24,376 bales on offer – figure 2. Clearly, supply in the favour of the growers at the moment and will continue to support prices in the short term. The key on whether the prices surge or consolidate will be how aggressive the demand is from Chinese buyers.