In nautical terms, dead calm is the absence of wind or waves. It feels that way at the moment in the grain trade. The market has largely drifting with little in the way of wind or waves to give momentum in any direction. Will the USDA & IGC report provide some wind behind our sails?
In the summary, we pointed out the largely directionless market, this can be seen in figure 1. The futures market has traded in a largely narrow band between 420-430¢/bu since the beginning of the year, with the exception of a short rise in mid-February caused by concerns of poor US rainfall. It has to be noted that the rise in February, although it looks large on this chart, it is far from an astronomical rise equating to only around $9.
However, a rise in futures does not always equate to a rise in local prices, in figure 2. We can see that during February basis levels around Australia fell close to the same level that futures rose. A real case “One hand giveth, the other taketh away”. In the past ten days, basis in the main ports around Australia has largely stabilised.
Yesterday the International Grain Council (IGC) released their global crop forecasts, and although not particularly positive for prices, does provide some hope for the future. The report indicates that in 2017/18 global wheat production would fall from 745mmt to 735mmt, with end stocks to be around 484mmt versus 513 this year. It has to be tempered that this would still remain the 2nd highest stocks in history. However, it does start to show a depletion in global stocks.
Next week
Overnight the USDA will release their stocks and prospective plantings report for the US. The report has the potential to move markets, and with expectations of diminished plantings in the US – will there be any surprises?
There are a lot of growers holding grain in their ownership, either on farm or central storage. In a directionless market, it is time to start thinking of alternative strategies to avoid accumulating storage charges.
I will be on holiday for the next three weeks in sunny Scotland, however my counterpart Angus will be covering the grain analysis and commentary.
Anecdotal reports of revived restocker activity within the young cattle market suggest that recent rainfall may have given a boost to prices along the Eastern seaboard. But does the underlying data for the Eastern Young Cattle Indicator (EYCI) show this to be the case and if so, is it evenly spread across the Eastern states? Is just a simple glance at the broad restocker activity all that is needed to give a robust picture of the market or is it central to beef analysis to delve a bit deeper into the figures? 
Using the underlying EYCI data we are also able to filter and analyse specific components of the broader EYCI market to determine if the robust restocker demand this season is stemming from a particular region. Separating EYCI restocker purchases into northern and southern saleyard groups, with Dubbo saleyard marking the mid-way point between North and South, we can assess how evenly distributed the restocker activity is along the East coast.
Taking a look at the price spread patterns for Southern and Northern sale yards we can see that there are some stark differences between restocker activity in each region. Figure 3 shows that Southern restockers have been happy to pay a premium spread above the EYCI trending along the top of the normal seasonal range and peaking last week at 8%, equivalent to 687¢/kg cwt. In contrast, Northern restockers are paying a premium spread in the lower end of the normal range and below the seasonal average level for this time of year at 2%, equivalent to 649¢/kg cwt – figure 4.
The above average volumes of cattle being purchased by restockers in both the North and South certainly shows the intention to rebuild the herd is evident across the Eastern seaboard. Although, considering the magnitude of destocking experienced in the North during the large turnoff during the 2013-2014 seasons the current volume of cattle going to restockers in Northern saleyards isn’t much dissimilar to levels seen last season.
Lamb prices continued to charge higher this week, despite stronger yardings. The higher prices are showing no signs of dampening demand, with some categories hitting new highs, while others eased off this week.
It was NSW which drove the ESTLI higher this week, as the 25¢ rise saw a new record price of 659¢/kg cwt. Light lambs in NSW saw a 42¢ rise to be the highest indicator in the land, at 673¢/kg cwt. By contrast, light lambs in SA fell 58¢ to sit at a paltry 539¢/kg cwt. For a 17kg cwt lamb that is a $23/head difference.
The rain from Cyclone Debbie shouldn’t impact the lamb market too much, but it won’t hurt. Lamb supply out of northern NSW is likely to be disrupted, so we can expect some solid support for lamb markets. Some forward contracts for trade lambs have been floating about this week at 670¢ for May.
Figure 1 highlights the rainfall pattern across the nation this week with the impact of cyclone Debbie clearly evident. Rainfall further south also present and helping to lift restocker spirits in the southern regions as outlined in the 
The national cattle indicators mostly higher this week with 2-4% gains recorded for all categories except heavy steers. The national heavy steer indicator dropping 3.4% on the week to close at 294¢/kg lwt. The Eastern Young Cattle Indicator (EYCI) mirroring the broader market up 4.4% on the week to close at 649.75¢/kg cwt. Young cattle prices continuing to find support from restocker buying and the added benefit of higher beef export prices, with the 90CL frozen cow up slightly – figure 3.
The EMI closed down 44 cents in A$ terms at 1502¢ and also softer in US$ terms at 1151¢, down 33¢. In the West, the indicator was off slightly more with a 46¢ decline in A$. terms. – figure 1.
On a slightly different tack, the 18 – 21 MPG Basis (or 18 MPG premiums over 21 MPG) has lifted from 242 cents in January to 740 cents this week; a lift of 498 cents this year. The improving fine wool basis is a clear signal that the fine wool doldrums of the past 7 – 8 years are behind us. Previously the fine wool rallies have been short & sharp, we will need to watch closely over the next 12 months to be alert to any future retracements.
With the market at record levels (still!!), it is a good time to look at the forward price relative to your expected shearing and also in relation to your financial budget. Reducing risk and locking in profit generally makes sense, but in this environment, it is even more compelling.
Reports around the sale this week however, are that this is only a “hick-up” to the market, not a serious concern. Stocks are still reported as “very tight” along all sections of the wool pipeline. We tend to agree that the market is not under great pressure, and with growers prepared to pass-in large volumes the market should find support.
The futures market has subsided (figure 1) in the past week, as areas of dry concern receive forecasts of substantial rain in the US, and minimal bad news coming out of Europe. The reality is that the trade is concerned about USDA stock reports due next week. This asks the question, what if exports have not been high enough to deplete stocks?
However at a local level, we have seen basis increase across all port zones (figure 3) at an average increase week on week of $3.50/mt. This is using the public bid, and there are further opportunities out there for non-public sales.
We will get an insight into inventory levels with next week’s USDA quarterly stock report.
The rainfall was better than expected, but the impact on price was about right. This week east coast rainfall saw lamb prices move back to a one month high, while mutton jumped to what is very nearly a new record. In the west prices corrected, but remain at the stronger end of the scale.
Lamb prices also rallied, but not by the same extent. The Eastern States Trade Lamb Indicator (ESTLI) gained 10¢ to hit 632¢/kg cwt, a four week high. Interestingly, this week was the third most expensive week for lambs this year (figure 3).
Tight supply continues to support sheep and lamb markets, and with rain this week, there is unlikely to be a lot of pressure to sell, with high prices the only thing that might keep supply flowing.
If you read agricultural news websites, or even listen to the ABC’s country hour, you will be aware of the beef ‘scandal’, which has hit Brazil this week. The reasons behind the scandal have been well documented, so we won’t repeat them here. What we will do is look at what a suspension of Brazilian imports might mean for Australian beef exports.
In reality, Uruguay and New Zealand are not really in a position to increase exports to China. Figure 3 shows the Uruguay and New Zealand have much smaller export programs than Australia and Brazil.
For a country with such a large export program, being suspended from your biggest market is going to be disastrous for beef and cattle prices. In Australia it would be similar to the US or Japan banning our beef, and we then either need to increase domestic consumption or find another market. Prices would fall very, very quickly.
In reality the widespread east coast rainfall would have been enough to halt the gradual slide in cattle markets. Almost all major cattle areas in Victoria and NSW got between 25 and 50mm, while in Queensland it was the far west, and south east which missed out.
Young cattle prices rallied, but you might expect a bit more. The EYCI gained 11¢ for the week to reach a five week high of 622¢/kg cwt. NSW and Queensland were the main movers, with feeders and trade steers gaining ground, while in Victoria prices were steady.
The better conditions are not going to go away soon. The improved demand for slaughter cattle could easily dissipate next week, but it’s very uncertain. What we can expect is tempered downside in young cattle from here, as there will be some pressure over the coming months, but improved restocker demand should soak it up.