Another relatively quiet week in the grain trade both locally and globally. In the past week, there have been further crop forecasts released, weather woes and political posturing from the Trump administration.
The wheat futures market has been on a downward trend since the start of the month (figure 1), and fell to as low as 398.5¢/bu. Overnight, futures rose around 5.75¢/bu (or A$2.8), it’s not enough to get overly excited about but any rise is better than a fall. The rise can be attributed to a recovery from falls in previous nights over concerns of posturing by Trump (more below), and concerns relating to cold weather. Although there will likely be issues with yield and quality in the US, it is still too early to get a realistic picture of any damage.
The International grain council (IGC) released updates to their projections, there were few surprises. Overall grain supplies are projected at their historic high 
(2.6bn mt) for 2016/17, and old crop end stocks will largely cancel out lower production in the 2017/18 season. Our view still remains the same that a large supply shock is required to put fire under wheat prices to an excitable level.
At a local level this week has been a short one due to the ANZAC day commemorations, which also traditionally has been a trigger for widespread crop planting around the country. Where it is not too wet to get machinery into the paddocks the country is for the most part in full swing. However, we have seen a sudden dip in basis levels across all port zones (figure 2), with Adelaide now following Port Lincoln into negative basis territory.
This week there were concerns that Trump was 
ready to scrap the North America free trade agreement (NAFTA), however it was later announced that there would a ‘renegotiation’. Free trade agreements were at the centre of Trumps campaign, with fears that they negatively impacted on American jobs. The removal of NAFTA would be a worry for American grain growers, as trade with Mexico has drastically increased since 1994 when it was enacted (figure 3). The overwhelming majority of imports are from the US but in recent months it is speculated that Mexican buyers have been examining options from the South (Argentina & Brazil).
What does this mean?
The grain trade will be keeping an eye on the weather in Europe and North America, in order to determine whether there are any major concerns.
At a local level, most farmers will be concentrating on getting a crop into the ground and marketing for old and new crop will largely be put to the back of the mind.
On a separate note growers holding old crop grain in silo bags in areas where mice are starting to become a ‘plague’ concern are advised to double check any bags for infestation.
Figure 1 shows the seasonal pattern for East coast slaughter for the week ending 21st April. While the numbers don’t yet represent the shortened ANZAC week it is still clear to see the recovery in supply after the Easter dip. East coast slaughter for the week rising to 109,500 head, a 10% increase from the previous release.
A forecast for some light rainfall for parts of Queensland and Victoria over the next week shouldn’t be enough to hamper transport so supply of cattle should continue to improve post Easter. Meanwhile, reduced beef cold storage levels for April in the US as they head into their “grilling season” should see the beef export prices supported in the coming weeks and will provide some encouragement to local processors on any price dips. These two factors set the stage for some price consolidation around the 650¢ level for the EYCI in the short term.
During a favourable season optimism runs high among restockers and opportunistic cattle traders supporting demand and prices for store/young cattle. The added buying competition between the three main purchasing groups (restockers, lot feeders and processors) will often see the Eastern Young Cattle Indicator (EYCI) outperform the price patterns for finished lines, as there is really only one buyer type for fat cattle – the processor. This piece will take a look at what can be expected for the spread pattern between heavy steers and the EYCI along the East coast for the next six months.
Interestingly, so far for the 2017 season the spread pattern in all three states has been following a similar trajectory to the 2011/12 average pattern. In addition, each state’s spread pattern for this season is trending close to the lower end of the 70% banding, reflecting that the favourable conditions have supported young cattle prices more than the price for finished cattle. Perhaps somewhat unsurprisingly the state that was hit hardest by the most recent cattle turnoff, Queensland, is experiencing the widest spread between young and finished cattle as the requirement to rebuild the herd is likely to be most evident in that region.
It is likely the spread patterns for each state will continue to trek along the lower end of the 70% band for much of the second half of the year. However, as the confidence level on longer term climate predictions for the 2018 season grows into the later stages of 2017 spreads may begin to return to more normal levels, particularly if the transition from a wetter to drier climate cycle becomes more evident.
One of the most interesting numbers found this week was MLA’s weekly lamb slaughter for the week ending the 21st of April. Lamb slaughter came in at just 293,342 head, the lowest level since July last year. In the week ending the 21st Lamb slaughter fell 5%, and also sat 5% below the Easter levels of 2016.
Not all lamb prices fell this week, Merino lambs gained 19¢ on the east coast, while light lambs were up 12¢. Neither quite managed to hit record highs, but are not far off at 611¢ and 673¢/kg cwt for Merino and Light lambs respectively.
Earlier this week we took a look at some of the production data US wheat markets take note of, and there is also some data which shows how traders react. The CFTC Traders Summary tells us what type of trader holds long or short positions in CBOT wheat.
Canola has found some strength in Canada this week as wet weather delays sowing. The spot ICE contract rallied over $30 to $520/t, while Jan-18 gained $15 to sit at $497/t today. With the weather forecast not looking favourable for sowing, there could be some more upside for Canola.
A rebound in East coast yardings post the Easter break, particularly out of NSW, sees the Eastern States Trade Lamb Indicator (ESTLI) take a breather this week. The ESTLI posting a 2.9% drop to 667¢/kg cwt. Not so for National Mutton, bucking the trend with a 1.9% gain to 495¢ – dragged higher by gains to Western Australian sheep.
Despite the higher supply, restocker lambs in NSW and Victoria gaining some ground up 10.4% and 6.6%, respectively. NSW restockers now fetching $119 per head, while Victorian restockers are enjoying a $126 per head level. The higher NSW yardings having most impact on Heavy and Trade lambs in that state down 4.2% (641¢/kg) and 1.4% (656¢/kg), correspondingly. The two softest categories of Victorian lamb for the week were Merino, falling 5.2% to 616¢, and Light lambs, down 3.5% to 660¢. Trade lambs the star performer in SA, the only category of sheep in that state to post a gain this week, up 4.2% to 614¢.
Another short week ahead with the ANZAC break and some decent rainfall to much of the sheep regions of the nation (figure 3) should see prices hold, or perhaps firm slightly. As outlined in the sheep/lamb analysis piece this week longer term fundamentals will continue to support any price dips seen in sheep and lamb markets for much of the current season.
In the earlier analysis (
Figure 2 is where the data becomes interesting. This shows the year on year change in volume for 50-69 mm length merino fleece wool by the micron ranges, for the January to March period. The changes vary widely. There has been a lot broader short staple fleece wool sold in 2017. This fits with the analysis from last week of the broader merino micron volumes. It points to plenty of downward pressure developing in the market as it struggles to absorb increases in the range of 40% to 100% of broad short staple fleece wool. This explains some of the low quotes coming out of the market for wool in these categories.
Figure 2 also shows the 90CL export beef indicator holding onto a price around 20 month highs. This week the 90CL sits at 614¢/kg swt, supported by tight supply from Australia and New Zealand.
Recent sales volumes and AWTA data have shown strong increases in the supply of broad merino wool in Australia. While the supply was expected to pick up on the back of improved seasonal conditions in 2016, the rise has been faster than anticipated. This article takes a look at where the wool is coming from.
The question is where is the extra broad merino wool coming from? As Mecardo showed in an article a couple of weeks ago (
As a check on this change, Figure 3 shows the year on year change in the volume of 12-18 micron wool sold by each region in the March quarter. The big swing to broader wool in the Great Southern region is matched by a big drop in 12-18 micron volumes. Notice the higher rainfall NSW regions have had increased fine wool sales this year, along with south-west Victoria (which was coming off a drought induced low base). The expected decrease in supply of fine wool from NSW has not eventuated, except for the western Riverina. Good seasonal conditions in 2017 (which has started in the Monaro) will be required to pull the micron broader in the regions, in order to lower the supply of fine merino wool.