Tag: Articles

Wool’s market of to a flyer!

Posted on by Caitlin Dearden

At the end of sales for 2016, we noted that the wool market had
finished in line with its performance over the year, solid, firm and
resilient. There was generally a feeling of confidence, but the open
to 2017 was well above expectation. The market this week opened
strongly and then just got better.

The week started in Melbourne on Tuesday where the initial price
rises were led by the fine wool, and when Sydney joined in it had to
catch up with the early market quote reporting 18 MPG up 100 cents
compared to the last sale in Sydney of 2016.

This was a large offering, the 48,808 bales sold was 10,000 above
the average weekly clearance for 2016.

By the end of the week, the EMI had jumped 67 cents to be at its
highest level for 5 years and within 3 cents of its all-time high in
2011 (Fig 1). In A$ terms it sat at 1422, exactly 140 cents above the
level for the first sale in 2016. In US$ terms it’s at 1061, well above
the comparative year ago, level of 890. These are strong signals that
demand is improving. Percentiles are telling the story, with all types
except Crossbreds at the 95% level or better. (Table 1)

In the Mecardo report this week by Andrew Woods, Wool supply
update, the seasonal effect is starting to become obvious with the
good general spring conditions translating into the clip moving
broader. This is taking pressure off fine wool prices, in fact there
is now evidence of buyers
concern with this end of the market keenly sought out this week.

The micron movement of the clip will be most keenly felt in the sub 19
MPG which is reducing in volume, and the 20 microns and broader
which is increasing. This trend has further to run, even without further
rain for the next couple of months the path is set; the clip will continue
to move broader. As a result, the fine wool premium is likely to continue
to improve, resulting in higher fine wool prices providing that medium
wool categories can at least hold at these levels (Fig 2).

Crossbred types missed out on the general price rally and continued to
struggle, on the other hand the 30 – 40 cent lift in the Cardings indicator
pushed all 3 centres indicators to record levels.

The Week Ahead

Another big offering of 55,000 bales listed for next week, and based
on this week’s sales we expect that only crossbred producers will be
doubtful of turning up to sale. So, a big offering, however those we
have spoken to in the trade are not seeing this as a temporary spike,
and while not expecting to see the gains of this week repeated note
that the tight pipeline supply is keeping orders flowing at these levels.

The wool trade is also aware that listed bales for sale quickly drop
back to 40,000 per week.

 

Call it the Kekovich effect

Posted on by Caitlin Dearden

It’s been an extraordinary week in lamb markets. Lamb markets have Figure 1
reached high which are usually seen in winter in the second week of
January, a time when supplies are usually good. When prices rise it’s
due to falling supply or rising demand, we suspect it’s a combination,
helped by the ‘Kekovich Effect’.

Figure 1 shows that in the second and third week of January in the last
two years, and on average over the last five years, we have seen the
largest slaughter of the first half of the year. Normally heavy slaughter
equates to lower prices.

However, figure 2 shows that despite high slaughter rates, prices in Figure 2
January have been steady or higher. How do we explain higher supply
and steady or higher price? Call it the ‘Kekovich Effect’, driven by Meat
and Livestock Australia’s (MLA) Australia Day lamb marketing campaign.

Demand for lamb obviously increases before Australia Day, lamb processors need more lambs, and supply is usually compliant in early January.

This year it seems some processors have been caught short. This week’s
Wednesday and Thursday sales gave a taste of what processors are willing to pay, with many lambs selling for well over 600¢, and the Eastern Figure 3
States Trade Lamb Indicator finishing at 599¢/kg cwt.

Light lambs are doing even better, with restockers paying 661¢, and
light lambs selling for 607¢ on the east coast.

Mutton has also joined the party, with the National Mutton Indicator (figure 3)
rising 32¢ to hit a three month high of 407¢/kg cwt. Mutton demand is not
likely to have increased like lamb, but rising prices suggest small stock
processors can’t find enough lamb, and are turning to mutton.

The Week Ahead

As outlined earlier in the week, the heavy supply of December is
coming home to roost, with few shorn lambs ready, and sucker
lamb supply basically done. The Kekovich Effect has at least a
week to run, which suggests lamb prices might stay strong for
another week or so.

After that, don’t be surprised to see lamb prices ease back, as supply
improves, and demand weakens post the Australia Day demand peak.

 

US market and exchange rate showing some reason for optimism

Posted on by Caitlin Dearden

We have been talking about the spectre of a correction in the Australian
cattle market for some time. The main driver behind any fall in prices, apart from local climatic issues, will be the weakness in international cattle markets. There is some reason for optimism however, with US cattle futures making some sort of a comeback in November and December.

Regular readers will be well aware that while the boom in local young cattle prices is reaching fever pitch at the moment, on an international level it is well and truly over. The US is one of Australia’s major markets for manufacturing beef, as well as a competitor in high value markets of Japan and Korea. As such what happens in the US cattle markets will
generally have an impact on our markets at some stage.

Figure 1 shows how US Feeder cattle futures have tanked since
reaching a peak in July 2015. However, US Feeder do seem to have
found some sort of base, having bounced 12% since hitting a 3 year
low in November. We can also see in figure 1 that the US price rally,
along with a fall in the Eastern Young Cattle Indicator (EYCI) means
that after a brief period at a premium, our prices are back at a discount.
Believe it or not, this is a good thing, it means pressure on prices to move lower will ease.

Additionally the easing Aussie dollar has added further upside to US prices in our terms, Feeder cattle futures have gained 16%, adding support for local prices.

In finished cattle markets in the US the price improvement has been
even more marked. Figure 2 shows US Live Cattle Futures, which is
roughly equivalent to heavy grainfed cattle here, has gained 19.5% in
US terms and 23.5% in our terms. This equates to 100¢/kg cwt in our terms,
and basically means that US beef that competes with ours in Japan and
Korea is more expensive than it was two months ago.

Further encouragement for local prices can come from the fact that
Queensland Grainfed Cattle prices have historically spent long periods at or
around parity with US prices. Under a tight supply scenario, there is little
pressure on heavy grainfed cattle prices to fall.

Key points:

  • US Cattle prices have made a recovery from the 3 year lows seen in November.
  • The falling Aussie dollar has added more strength to the US equivalent prices in our terms.
  • If US cattle prices remain strong they should provide support for Australian values.

 

What does this mean?

Before the rally in US cattle prices at the end of 2016 we were concerned about downside for
heavy grainfed, and grassfed cattle. Eventually weaker heavy cattle prices would translate into
feeder and young cattle prices. However, the pressure on heavy cattle values has eased somewhat,
and while the market might struggle to move higher without help from the US, downside is limited
as long as US prices don’t tank again.

Continued strong heavy cattle prices will continue to support young cattle prices, as long as feed
remains abundant and cheap, which it should – at least in the short term.

 

StockCo in Negotiations to Sell Equity Stake to Elders

Posted on by Caitlin Dearden

Australia and New Zealand’s leading livestock funder, StockCo, has today confirmed plans to sell 30% of StockCo’s Australian operations to Elders.

StockCo Group managing director Marcus Kight, advised he was excited to be formalising what had been a very successful collaboration between StockCo and Elders since 2014. “The close working relationship between Elders and StockCo has resulted in positive outcomes for our mutual clients. The taking of an equity stake in our Australian business will be a great way to align growth ambitions for both companies and for StockCo to secure long term access to Elders’ impressive distribution platform.”

The close working relationship between Elders and StockCo has resulted in positive outcomes for our mutual clients. The taking of an equity stake in our Australian business will be a great way to align growth ambitions for both companies and for StockCo to secure long term access to Elders’ impressive distribution platform.

One of StockCo’s strategic imperatives has been to build a strong and diversified distribution capacity so that StockCo’s livestock funding products were easily accessible to customers throughout all livestock producing regions in Australia.

In this regard StockCo is committed to a multi-channel distribution strategy and currently has diversified distribution via the following:

  • a formal distribution agreement with Elders,
  • a formal distribution agreement with Ruralco,
  • a formal distribution agreement with Sprout Ag,
  • arrangements with a number of private and independent livestock agents,
  • broker agreements with selected independent agribusiness advisors, and
  • a direct to market channel whereby clients can deal directly with StockCo.

Mr Kight confirmed that the purchase of an equity stake in StockCo by Elders would not change StockCo’s multi-channel approach and that StockCo would remain an independent business providing livestock funding options to all Australian livestock producers in a manner that compliments existing banking relationships

About StockCo:

StockCo was formed in 1995 and is Australia and New Zealand’s leading specialist livestock funder. StockCo’s market leading products have become an important funding tool for Australia’s livestock producers. The benefits of StockCo’s livestock funding are:

  • Fund up to 100% of the purchase price of livestock for trading, backgrounding and finishing purposes.
  • Finance charges are payable at the time of sale of the livestock.
  • Security is taken over the livestock funded, leaving existing security arrangements with the client’s bank unaffected.

Facilities are designed to enhance client relationships with their existing banks. This is achieved by assisting clients to generate additional income from their existing asset base, or by increasing the scale of operations, without disrupting existing facilities or security arrangements with the client’s bank.