National saleyard indicators tracked sideways this week, with most posting percentage price movements with less than a 2% variance, as slaughter and throughput figures along the East coast remain largely unchanged.
The Eastern Young Cattle Indicator (EYCI) just 1.8% softer to close at 643.25¢/kg cwt. It’s Western cousin a touch heavier with a 2.3% fall to 635¢, while the key beef export benchmark 90CL frozen cow managed a slight 0.9% gain to 652¢/kg CIF – figure 1.
The heavy 123¢ slide in Queensland Trade Steers noted last week was reversed somewhat this week with a 91¢ lift and as suggested in our previous cattle market comment the price volatility in the QLD Trade Steer numbers the result of low throughput levels – figure 2. QLD Trade Steers the only noticeable mover this week with most other state based indicators in a consolidation phase.
The sideways price action demonstrated by most cattle categories somewhat unsurprising given the broadly unchanged weekly slaughter and yardings numbers. East coast slaughter for the week ending 2nd June only 83 lower than the prior period and just shy of 136,000 head. East coast yarding posting a 1.8% gain on the week to see 54,940 head change hands – figure 3.
The week ahead
The eight-day forecast from the Bureau of Meteorology shows a fairly dry outlook for much of the nation with only slight falls, of less than 15mm, to NSW noted. This would suggest a bit more of the same for the coming week with price consolidation the order of the day.
Australian Wool Innovation has stated it will progress with its Wool Exchange Portal (WEP) beyond the scoping stage and is now moving to the “discovery stage” where the portal is built. Expected industry benefits are $38 million over the first 15 years. In this article Mecardo puts this expected benefit into perspective.
Costs incurred by growers after the wool has been delivered to store (excluding shearing and delivery to store costs) were $72 per farm bale in 2009-10. Figure 2 shows a breakup of the costs associated with purchasing wool (direct costs to mill) in Australia which totalled $75 per farm bale in 2009-10. In total it cost $175 per farm bale to sell wool in 2009-10, through a system with no counterparty risk.
In Australia in 2017, around 1.5 to 1.6 million farm bales will be sold annually through the auction system. In May the average gross value per bale was $1670. For the past three years the average gross value per bale sold has been $1411.
WA doesn’t have the most expensive lambs in the country, but with the Western Australian Trade Lamb Indicator (WATLI) hit a new record this week. The WATLI gained 17¢, to hit 681¢/kg cwt (figure 1), stronger than the ESTLI (670¢) but weaker than Victorian Trade Lambs, which sit at 695¢/kg cwt.
It’s interesting to see lamb slaughter remaining relatively steady over the last five weeks (figure 3), at levels similar to last year. As we said a couple of weeks ago, the same supply, and prices 12% higher, suggest demand has strengthened.
Normal market drivers and influences were turned on their head this week. On Wednesday, the A$ fell and so did the market, while on Thursday the market rallied with the A$ ending the week up by almost US$0.015 cents. 
To compare with the same period last year, wool sales; more specifically “clearance to the trade”, are on average 4,000 bales per week lower.
The opportunity for wool growers is to apply a strategic approach to sales; that is use the wool broker to identify types that are selling well as well as types that are over supplied or lacking demand; and then sell or hold back as your situation allows. The recent market activity shows that a weak market one week is quickly replaced by a rally. It is also a time to have any unsold wool listed on Wool Trade where buyers can access if required.
In our grain article yesterday, we picked out a few bullish factors at play in the market. Our view is that based on current market factors that pricing is close to the floor. In this weekly comment, we look at current pricing and the situation in Spain.
In the past week, we have also seen the Baltic Dry Index (BDI) fall below the 200-day moving average (Fig 3). The BDI is considered a leading economic indicator as the cargoes typically transported by bulk vessels are commodities requiring further processing (iron ore, coal, grains etc) to create an end product, thereby giving an insight into future economic performance. The poor economic data in China, and declining Iron Ore returns could place further pressure on the A$.
The fundamental international market news was bullish this week, but markets seemed to focus more on local issues. Broader indicators managed hold their ground, or even rally a bit, but at the state level there were some heavy price declines.
Restockers pushed the EYCI higher, as shown in figure 1, it gained 4¢ for the week to hit 655.25¢ a five week high. Cows also rallied, while heavy steers fell.
In WA the Western Young Cattle Indicator (WYCI) gained a couple of cents to sit at 650¢/kg cwt. Figure 3 shows an interesting convergence. The EYCI, WYCI and 90CL indicator all sitting between 645 and 655¢. The last time we saw this was in March 2016.
Living in Western Victoria, which is one of the hotspots for the swing to meat breeds, it’s hard to imagine that 69% of the ewe flock is made up of Merinos. Figure 1 in part explains this, with 61% of the nation’s Merinos being in NSW and WA. Just 15% of Australia’s Merino Ewes are now in Victoria.
Figure 2 also shows every state except WA has increased their number of ‘other’ breeds since 2012. On a national scale, the decline in Merinos hasn’t been matched by increases in other ewes. However, in NSW and Victoria Merinos have been displaced by other ewes. In WA, SA and Queensland total sheep numbers have fallen.
Perhaps it is due to climatic conditions, or it might be due to the fact that Merino’s are bigger and more suited to lamb production in WA, but the West remains a stronghold of the Merino. The proportion of Merino’s in the west hasn’t really changed over the last five years, fluctuating between 86 and 92% and currently sitting at 87%.
nal OTH prices to see it probe toward the $5 mark, closing just shy at 490¢/kg. WA Trade lamb mirroring the ESTLI percentage gains to see it up 1.1% to 664¢/kg cwt, while WA mutton recovering strongly to see an 8.6% rise to 453¢.
East coast lamb throughput retraced 12% this week to see just over 175,000 head reported through the saleyards. The softer offering broadly supportive of prices, although SA lamb numbers were up 18.7% in contrast to the other East coast states – perhaps another reason for the SA price weakness displayed. Despite the softer week on week East coast lamb throughput the trend is still tracking above the five-year average and higher than this time last year – figure 2. This suggest the current solid prices are drawing out a bit of supply but not enough to curb the recent price gains.
A good sign for robust offshore demand noted with live export wethers up 26% on the week to hit $136 per head out of Muchea. Finally, in weather news of a different kind the Bureau of Meteorology released their next instalment of the three-month outlook showing a drier than normal Winter for much of the sheep rearing regions of the country.
17 to 19-micron fleece registered falls of 55-85¢ across all three selling centres. Melbourne the only auction to offer some finer 16.5-micron wool, but the single source not enough to protect it from registering the largest falls this week closing 113¢ softer to 2135¢/kg clean. Medium wool classes a bit of a mixed bag with 20-25¢ falls in the 20 microns in all centres, 21 microns ranging from a 12¢ loss in Fremantle to a 6¢ gain in the South, while 22-23 mpg wool saw gains from 1-14¢ recorded. Cross bred wool saw Southern 30 mpg shedding 30¢ but the remaining classes posting flat to slight gains of less than 10¢.
Pass in rates remain higher in the West and the national pass in rate dropping slightly on the week to 12.2% as 24,976 bales were sold out of a possible 28,459. This is the lowest bales sold since late June 2016 although compared to this time last season bales sold this week were 5.4% higher suggesting the relatively higher prices aren’t deterring buyers too much.
The grain market continues to consolidate over the past week, after the large rise early in the month on the back of the Kansas snow event. There are some small glimmers of hope which are starting to crack through the bearish wall, and lend some support to prices.
At the moment, we think that we are close to the floor of the market and downside is quite limited. There are a number of weather woes around the world with the possibility of drought across the parts of the northern plains of the US. Locally it is increasingly looking like conditions will be dry over the next three months.
The International Grain Council released their monthly crop forecasts, reducing global end stocks for 2017/18 down 2mmt. This is largely insignificant; however, corn was reduced by 34mmt on the back of increased demand, which will help with sorghum and barley pricing if forecasts are accurate.