A bit of a mixed market this week with the very fine end still surging forward but some beginning whispers of nervousness among exporters at the auctions this week starting to creep in, although this may begin to be eased by a softening A$.
The EMI closed flat on the week in A$ terms at 1546¢ and slightly softer in US$ terms at 1184¢, down 4¢. In the West the indicator was off slightly more at around a 20¢ decline in both A$ and US terms – figure 1. Reports from wool brokers this week suggest that for the first time in a few months’ exporters have begun to question how long the rally can be sustained.
Given the higher volumes on offer, the reaction of the market as a whole not too bad with the 20-22 micron categories taking the most heat. A total of 45,507 bales sold out of 49,214 on offer resulting in a slightly higher pass in rate of 7.5%
Taking a look at where the EMI is trading in A$ terms, when compared to US$ terms, relative prices being paid for Aussie wool by offshore buyers is still lower than the 2012 and 2011 peaks, suggesting that there may be some life left yet in the current rally – figure 2. The market potentially taking comfort next week in a further softening of the A$ overnight toward 76.3US¢, particularly if the currency can continue to drift off over the weekend. Most major Aussie banks still forecasting an A$ toward 70¢US by the year end which will provide medium term support to the wool market should they prove to be correct.
The week ahead
Next week we have just under 47,000 bales listed for sale with trading schedule two days. A drop in volumes on offer for week 40 and 41 toward the lower 40,000 region could see further gains in price in the coming week, particularly if the A$ can slide back towards 75¢US.
Early this week wheat futures fell on the back of lack of fresh data, and encouraging crop conditions in eastern Europe. The generally benign conditions and the large global surplus is keeping a dampener on large upside potential. The market fell around 15¢/bu ($5.7USD/mt), before regaining strength to hold currently 8¢/bu ($2.3USD/mt) above last Friday (figure 1).
This week the US fed jacked up their interest rates by 25 points, typically this would put pressure on the Australian dollar however this was not the case. The Australian dollar rose to above 77¢ (figure 3), and the AUD trade weighted index rose dramatically.
There are some concerns in the US related to dry weather, and eyes will be on weather forecasts pointing toward a deluge in the coming weeks. If this eventuates it will lead to an improvement in US crop potential.
Figure 1 shows the east coast throughput tracking lower again on the week, despite a lift in Queensland yarding numbers, as the southern states start to restrict supply. The 43,900 head reported marginally softer than last week, but quite a bit lower than the same time in 2016 when just over 64,000 head were going through the east coast sale yards.
Western prices softer across the board with pastoral cows mirroring the SA medium cow falls, down 25.5% to 168¢/kg, while the Western Young Cattle Indicator (WYCI) only marginally lower to 682¢/kg – a 2.3% drop on the week. The Eastern Young Cattle Indicator (EYCI) reasonably stable, with only a 0.5% decline to close at 611¢, exactly where the 90CL beef export prices managed to finish the week – figure 2.
Regular readers will know that when we talk about lamb markets, we use the Eastern States Trade Lamb Indicator (ESTLI) as a base for our analysis. The regular reporting and widespread coverage of the ESTLI make it a reliable gauge for the level and direction of the lamb market. However, with the recent launch of MLA’s new market information website, we can now drill down to saleyard level and get some specific regional spreads to help guide buying or selling decisions.
To give an example of how helpful this data can be, we have run some comparison of price for 20-22kg lambs, sold to processors, in Hamilton and CTLX. To get a good data, we had to merge the young lamb and old lamb prices series, and this makes it obvious when young lambs arrive in these markets. This analysis will give us an idea of how reliable the ESTLI is as an indicator for these yards at different times of year.
Looking at markets on an annual basis shows a clear strategy for trade lamb producers who use these saleyards. At Hamilton, there is an annual heavy discount for trade lambs to the ESTLI, starting in September and not really correcting until November. This is due to the dearth of lamb numbers, and specifically young lambs, with a critical mass not usually arriving until November, when prices generally run at a small discount to the ESTLI.
The brief analysis tells us that for most of the year the ESTLI is a good indicator of prices at Hamilton and CTLX. When lamb prices move to heavy discounts to the ESTLI is when there aren’t many lambs being sold. This tells us that if we are going to sell lambs in early spring, these saleyards might not be the best option.
Supply was back this week on the east coast, as the public holiday in Victoria impacted numbers. It was in NSW and SA where prices rallied however, with their respective trade lamb indicators gaining 10 and 17¢ to 622 (NSW) and 576¢/kg cwt (SA).
Figure 2 shows the stellar rise of lamb prices in WA, as they move to a premium to the ESTLI for the first time in 15 months. Lamb prices in WA have rallied for four and a half months, and added 200¢, or 44%. This weeks 16¢ rise to 645¢/kg cwt was in spite of a 40% increase in yardings. The lift in yardings might be due to over the hooks quotes running almost 100¢ behind the saleyards.
The rain forecast in figure 3 should see solid support for lamb and sheep prices over the coming weeks. It will encourage holding lambs, and sheep as it looks like an autumn break for at least some parts of the country.
This was a big week for prices on top of a stellar run over the past few sales. The EMI lifted 24 cents, but with a stronger Au$ it was 43 cents higher in US$ terms. To pick a MPG category, 18.5 was quoted +80 cents in Melbourne, +95 cents in Sydney and +59 cents in Fremantle over the week.
One way to put perspective on where prices are relative to the past is via Percentile Tables. Since 1996 only 18, 21 & 22 MPG have reached higher levels, that is for 100% of the time since 1996 the market has been lower than the current price for all other Merino micron types. No doubt a fitting reward for those that have stayed the course and are now selling wool at very exciting prices.
Coupled with the virtual non-existence of any wool stocks either on farm, in brokers stores or in mills; then the outlook has little supply pressures ahead.
The market in Fremantle closed a little softer for 20.5 and coarser wool so some caution for the 2 day sale next week. A increased offering of 51,200 bales is rostered for next week, over 10,000 up on this week’s clearance of 39,800. In subsequent weeks though, AWEX is forecasting back to 42,000 bales per week.
It’s a bit unusual to get large shifts in supply or demand in the WASDE report at this end of the growing season. Most world crops are all but in the bin, with just South American summer crops, corn and soybeans still to be harvested.
The USDA also lifted Brazilian corn production, increasing 5mmt, and Argentina by 1mmt. This increased world ending stocks by 1.4% thanks to some increases in consumption. This sees the global stocks to use ratio still marginally lower than last year, which should provide some price support.
East Coast cattle yardings fell to 6 week lows this week, as lower prices deterred growers from sending cattle to the yards. Figure 1 shows that yardings this week were down 10% for the week, and 23% on the same time last year. With the public holiday next week in Victoria, yardings are likely to be lower again.
In the West the rain and dearth of supply has the market sitting well above the east coast. While there were no quotes from saleyards, over the hooks yearling cattle remain in the 580-630¢ range.
All going well, and with the rain landing in the right places at the right time, Australia can be expected to have a bumper canola crop. This is a story likely to be repeated across the rest of the world with the fall in cereal prices.
When the Matif contract is examined a different picture emerges. The price during the Australian harvest has been lower only 10 times out of the past 22 seasons, with an average positive change of 5%. However, if we preclude the large changes in 2007 and 2010 the average drops to a meagre 1%.
Figure 1 highlights the recent pattern of east coast lamb throughput showing a much more subdued pattern this week, in contrast to the seesaw of the weeks prior. Yarding figures hardly budging with a meagre 1.4% rise to sneak above 181,000 head. The Eastern States Trade Lamb Indicator (ESTLI) responding to the stable throughput settling exactly where is closed this time last week at 611¢/kg cwt. Stability in price the order of the day for most categories of lamb in the national indicators too with 0-1% gains in all classes of lamb, except national restocker lambs, down 3% to $96 per head.
In contrast, WA mutton experiencing a stellar performance with an 11% price rise to 478¢/kg cwt. Spurred on by much softer supply (as shown in figure 2) with WA mutton throughput down 39.6%. The impressive performance this season not limited to mutton in the west with the Western Australian Trade Lamb Indicator (WATLI) continuing to press higher this week to close at 629¢ – figure 3. The tighter season and firm export demand helping support WATLI and WA mutton, 31% and 78% higher than this time last year – respectively.
Forecast rainfall between 5-15 mm to much of the sheep bearing regions of the nation next week will give slight relief to the recent dry spell to much of SA and Western Victoria during the last fortnight. This is likely to encourage further price consolidation to continue for the next few weeks for lamb and sheep markets.