Tag: Business

A stagnant cattle market not moved by rain

Posted on by Caitlin Dearden

While lamb and sheep prices have reacted to the rain in Victoria and New South Wales, the heavy falls didn’t make it to Northern NSW and Queensland. As a lot of cattle come out of this area at this time of year, national indicators were stagnant.

Eastern Young Cattle Indicator (EYCI) yardings did fall away from the 7 month highs of last week, but remained relatively strong (figure 1). Seemingly demand was a little weaker. The EYCI tracked sideways, finishing Thursday at 579.25¢/kg cwt, and has now spent 6 weeks around this level.

It’s probably not surprising, but the major mover in cattle markets this week was the Victorian Restocker Indicator (VRI). The VRI rallied 36¢, or 12% to 305¢/kg lwt, but remains well behind it’s Queensland and NSW counterparts, which sit at 359 and 328¢ respectively.

We thought the rain might cause some transport disruptions, and hence stronger prices for slaughter cattle.  But like the EYCI, slaughter cattle values were largely steady, or even lower in some cases. Trade steers seemed to be the hardest hit.

Export beef prices also eased this week, which might explain some of the lower slaughter cattle values.  The 90CL Frozen Cow Indicator fell 17¢ (figure 3), or 2.5% to a 6-week low of 592¢/kg swt on the back of weaker demand from the US. There are also reports New Zealand cattle slaughter is ramping up, which it does seasonally, and increases supplies of lean beef.

The week ahead

With just two weeks to go until the Christmas break, it seems cattle prices are set to track sideways into the end of the year. We won’t have wait long after that for a significant move in cattle prices, as we generally get one over the Christmas break.  A good rain in Queensland can kick prices higher, and dry weather might see prices ease.

Is retail lamb set to rise?

Posted on by Caitlin Dearden

It will come as no surprise that retail lamb prices follow the saleyard and with lamb prices holding their ground into Spring this piece takes a look at what that may mean for the end consumer into the coming season.

Figure 1 highlights the price pattern since 2000 for both retail lamb prices and the Eastern States Trade Lamb Indicator (ESTLI). Progressive seasons from 2013 onwards have seen saleyard lamb prices make successive higher peaks and troughs. Indeed, lamb producers have been enjoying some record results during the period, with the quarterly average ESTLI increasing 98% from 331¢ in quarter four of 2012 to 657¢ as at the second quarter of 2017.

Retail prices have also gained during the 2013-2017 period, although competitive pressures at the supermarket and butcher shop have meant that retail lamb prices have only managed a 19.8% gain from $12.52 in quarter four of 2012 to $15.01 for quarter two of 2017. This has meant the retail mark-up over the saleyard price has narrowed from 278% to 128% over the four-year period.

Figure 2 highlights the narrowing of the mark-up, such that the most recent quarters figures see the mark-up percentage sitting below the normal range and just a fraction above the lowest recorded mark-up since 2000 at 123% during quarter one of 2014.  Indeed, the current mark-up of 128% is 34% below the long-term average mark-up measured since 2000 of 194%. As the grey banding demonstrates the mark-up has fluctuated between 139% and 247% for 70% of the time from 2000 to 2017.

A time series analysis of the percentage movement over the quarter for the ESTLI and retail lamb prices shows that retail lamb price movements lag the saleyard – figure 3. The narrowing of the mark-up between retail lamb and saleyard lamb prices below the normal range suggest that either saleyard prices need to ease or retail prices have to increase in order for the mark-up to get back into the normal range.

What does this mean?

Given the tight supply scenario is going to be maintained into the 2018 season and we have seen an improvement from the unseasonal dry Winter to more average climatic conditions as the 2017 season comes to an end its unlikely that the saleyard lamb prices are going to come under significant pressure.

This suggests that retail lamb prices are set to probe higher in the coming months unless retail competition can keep margins tight – maybe it is time to accept the dinner invitation with Tom Cruise instead of having the lamb roast at home!

Key points:

  • The retail percentage mark-up of retail lamb prices over the ESTLI has narrowed 54% since 2013
  • The most recent quarterly mark-up is sitting at 128%, 34% under the long-term average mark-up and is below the normal range recorded since 2000 between 139% and 247%
  • Forecast supply and climatic conditions into 2018 suggest that a widening of the mark-up is more likely to come from higher retail lamb prices rather than softer saleyard prices

An early shear bring pre Christmas cheer

Posted on by Caitlin Dearden

With the Christmas recess looming the market regained some upward pressure this week as exporters tried to lock in their requirements. Fine and medium fibre prices built up gradually across the sales, while most of the crossbred market moved into negative territory.

The Eastern Market Indicator (EMI) gained 7 cents to the week in Australian dollars, but when converted to US dollars, felt just a 1 cent increase. The story was similar in the West with the WMI lifting 8 cents.

Results from the superfine sale in Sydney this week were positive with a 36 cent gain for 16.5 micron fibres. This was the best result on the board with the other fine categories ranging from slight retractions to an average 20 cent gain. Medium fibre (19.5 to 22 micron) prices managed to correct themselves from the levels of the week prior. Rises of 15 to 25 cents were common at all three selling centres. Most microns and categories in the skirtings market received support in line with the gradual increase of the fleece market.

The crossbred market failed to bounce back like the Merino market this week. Prices continued to drop in the margin of 10 to 25 cents, particularly for lots that were poorly prepared. Locks and crutchings managed to attract some stronger prices in the oddments market and we saw washing lambs at extreme levels for the finer lots. The cardings indicators moved up slightly, with an average 3 cent increase across the three selling centres.

The week ahead

The bale offering over the last few weeks has been sizeable, and this is set to continue with 50,828 on offer next week. There has been discussion that the good market has driven a lot of growers to pull their shearing dates ahead of schedule this year. Given the offering we’ve seen over recent weeks, It looks as though many growers are running about a month earlier than on a typical year. If this is in fact the case, we expect that supply will drop out slightly in the new year.

And the waters prevailed on the earth… Gen 7:24

Posted on by Caitlin Dearden

Forecast rain in the South-East corner of near biblical proportions for the week ahead keeps restocker interest high at the saleyard and young cattle prices across the country firm slightly in response.

Figure 1 highlights the anticipated rain event, with falls noted into the 200-300 mm level in Northern Victoria and falls of at least 50mm to much of Victoria and NSW. While its not great for many out there trying to complete this season’s harvest it’s a boost to backgrounders, with the high moisture and warm weather giving a lift to pasture growth in the coming weeks.

Indeed, spirits of restockers across the east coast have been encouraged and this has played out in restockers continuing to pay above average premiums at the saleyard for young cattle. The East coast restocker spread pattern showing that they are happy to pay over 6% more than the headline EYCI to secure stock – figure 2.

In an analysis piece released on Mecardo last month the main driver for the increased restocker spread was coming from Northern restockers. However, in recent weeks the Southern restocker premium has lifted too with premiums over the EYCI of 4-5% noted during November being paid, reflecting the growing optimism for a good Summer grazing potential as we head toward the end of the year.

The EYCI finished the week up 2.5¢ to 579.75¢ and the Western Young Cattle Indicator (WYCI) was also higher, lifting 13¢ to 585¢. This was despite the 90CL Frozen Cow easing slightly to close at 609¢/kg CIF – figure 3.

The week ahead

Its hard to see young cattle prices ease into the coming week with the amount of moisture that is forecast. Producers know its going to translate into decent pasture and they hate seeing grass going uneaten when they know cattle could be getting fat on it.

Make sure you stay safe out there this weekend and remember – don’t drive through flood waters. Oh, and spare a thought for the frantic lot trying to get as much harvested before the deluge.

 

Rain pain for the grain

Posted on by Caitlin Dearden

We set out trying to work out what the heavy rain which is falling across all eastern cropping zones over the coming days will do to prices.  It’s not as simple as looking back at 2010-11 when harvest was delayed, as that was a bumper crop, and this is not.  We’ll have a look anyway.

Figure 1 shows the impact of heavy December rain back in 2010 on feed wheat prices delivered Melbourne.  Over the course of two weeks the price lost $70/t as shot and sprung wheat was harvested and overwhelmed feed users.  Basis to CBOT moved to an all-time low of around -$70/t, as CBOT rallied due to the now tighter supply of Milling Wheat coming out of Australia.

Due to the much tighter total supply of wheat, we don’t expect such a dramatic fall in feed prices this year.  We could however see a spike in milling wheat prices, as already low supplies are exacerbated by downgrades.

The market has already started to move.  APW Geelong rallied $5/t today, up to a 7 week high of $265/t.  In PortAdelaide APW gained a little ground, but remains at $250/t.  SFW delivered Geelong hasn’t moved yet.  In fact it was a little yesterday, at $228/t.

In international markets price were down this week, Dec-17 CBOT hit a contract low 411¢/bu (figure 2).  In AUD terms CBOT is at just $202/t, down around $8 for the week.  Basis just keeps getting stronger.

The week ahead

As we outlined in the Canola analysis earlier in the week, it looks like a hold at the moment.  Sales of milling wheat, for those fortunate enough to have it in store already, can probably and wait to see how prices wash out after the rain.  Feed grain prices are unlikely to find any strength from here, so if looking for cash flow, feed barley and wheat would be grains with the least upside, and most downside.

Rain could lead to short term gain

Posted on by Caitlin Dearden

Unseasonal rain will have an impact on sheep markets.  This week it had an impact even before it fell, with the Eastern States Trade Lamb Indicator rallying back to 613¢/kg cwt this week.  The unpredictable weather might see more surprises yet.

The supply, demand and price equation is still not adding up relative to last year.  Figure 1 shows that to the end of last week east coast lamb slaughter hit its 2017 high, just shy 400,000 head.  Lamb slaughter was 3% higher than the same week last year, yet the ESTLI remained 17% higher.  We keep talking about it, but lamb demand is very strong.

For sheep the equation is similar, but the lift in demand is more dramatic.  Last week 18% more sheep were slaughtered than this time last year, yet prices were 14% higher.  Total sheep and lamb slaughter for last week was 6%higher than this time last year, and just shy of a two year record (figure 3).

Interestingly however, total sheep and lamb slaughter is right on the five year average.  This tells us there is slaughter space available, it just needs to come back online, and at current prices, export demand needs to be strong enough.

In the west lamb prices maintained their strength.  At 578¢/kg cwt, the WATLI is 100¢ stronger than this time last year, and not far of the ESTLI.  Restocker lambs remain cheap however, at 508¢/kg cwt, compared to east coast at 680¢/kg cwt, and this is encouraging the shipping east.  Lambs from WA can be landed in eastern Victoria around $10 cheaper than the local price.

The week ahead

The forecast for the coming days is for plenty of rain.  This is the time of year when lamb yardings peak, and processors rely more heavily saleyard supplies than usual.  Disruption to saleyard supply due to rain will be hard to replace with direct consignments.  This means we could see a short term spike in lamb prices next week as processor battle it out for supply.

Russian wheat crop- growing or glowing?

Posted on by Caitlin Dearden

The Chicago futures market was closed for the thanksgiving holiday, causing the market to be quiet. In this update we take a look at pricing, and radioactive issues in Russia. We know the Russian crop is growing, but is it also glowing?

The markets were quiet this week, as they celebrate thanksgiving in America. In figure 1, we can see that the futures market continues to trade in a narrow range of around 10¢/bu (A$5/mt). The lack of fresh news is likely to continue trading this range for the rest of this year, with the worlds production now largely locked in.

The one piece of potentially bullish news, is the BOM prediction of a La Nina event over the summer. They are predicting that this event will be weak, and likely to lead to heatwaves in eastern Australia as opposed to the usual La Nina effect of wetter conditions. Typically, a La Nina event can cause dry conditions in the US cropping belt (see map), however is unlikely to have a significant impact unless it continues through into our Autumn.

The local harvest is not without its issues, we have seen hail in Esperance & rain in SA/VIC challenging farmers patience. The pricing around the country has flatlined, with little in the way of movement since the beginning of November (figure 2). Interestingly, the major frost event in the western districts of Victoria has had little in the way of impact on the Geelong price. The question will be whether there is enough grain to avoid a price rise, or is the trade underestimating the impact?

The Russian crop continues to place pressure on the wheat market, with black sea origin wheat winning nearly every tender since September. In figure 3, the wheat production from Ukraine, Russia and Australia are plotted since 1988. It is clear that the advancements in the Russian crop through a combination of opening new land, agronomy and technology have led to a stratospheric rise in production.

It is growing, but is it also glowing? It was revealed that a radioactive substance ‘Ruthenium 106’ had been detective in the Ural Mountains at 1000 times higher than normal levels. This indicates the likelihood of an incident at a Russian nuclear facility. It is expected that although high levels, that it is not at the degree to impact lives. There were rumours of traders covering short positions, as this news developed. However, it is unlikely that this event will cause a huge impact to the Russian grain machine.

Here’s a joke for the weekend:

What did the nuclear physicist have for lunch?

Fission chips

I don’t envisage the market reacting to the Russian radiation story, so I wouldn’t be hoping for a price rise based on this.

The futures market is likely to continue treading water next week, as there are limited drivers in the market. At a local level basis levels remain small, but there could be potential for price rises in Geelong as a result of the realisation of the extent of the frost damage in the Western Districts.

What goes up, must come down

Posted on by Caitlin Dearden

After weeks of a glowing market that seemed to keep on rising with record on record, the peak was finally reached and the market edged over the other side. Nearly all categories and microns across the country retracted on the week, however it wasn’t enough to cause too much concern.

The Eastern Market Indicator (EMI) dropped 14 cents on the week to 1,669¢. The weakening Australian dollar has meant the retraction was not quite as strong in US dollar terms, with just a 9 cent drop to 1,270¢. The Western Market Indicator fell just 8 cents on the week to 1,717¢.

The bale offering this week was substantial at a total of 48,409 bales. With the consistently high trade offering over the last few weeks AWEX reported that it has reached the point where buyers were able to be more selective with their purchases. The word on the ground from exporters suggests that the softening market this week is being led by offshore clients pulling back slightly due to tightening credit. The responding retraction in prices saw a bump in the percentage of wool passed-in this week. It rose 3.2% from last week to 6.4% of bales passed-in.

The finer micron wools still appear to be reacting most to any change in the market. The largest price correction was for 18.5 micron, which dropped 35 to 50 cents in the East over the week. Medium fibre wools (19.5 to 22 micron) lost on average 10 to 30 cents, while crossbred wool again demonstrated its volatility in a wide range of results. The finer crossbreds held slightly, to a loss of 10 to 20 cents, but 28 and 30 micron prices suffered on average 40 to 60 cents drops.

Skirtings followed the movements of the Merino market showing reductions ranging between 20 and 40 cents. The cardings indicator managed to retain some stability in the East on the week, and even posted a gain of 15 cents in the West.

The week ahead

Next week a huge offering of 51,982 bales is tipped across the three selling centres. Significant volumes are expected for Sydney and Fremantle which are providing most of the boost in next week’s offering. Sydney will be holding a designated Australian Superfine Sale on Wednesday and Thursday.

Resilient market defies flush

Posted on by Caitlin Dearden

The Eastern States Trade Lamb Indicator (ESTLI) continues to hold its ground in the face of strong lamb throughout figures being recorded in South Australia and Victoria, closing yesterday just 1¢ softer at 610¢. East coast mutton was even more defiant in the face of above average saleyard numbers to see an 8¢ gain to 461¢/kg cwt.

The East coast lamb throughput posted a 22.5% increase on last week and is sitting 28.4% above the five-year average for this time in the season – figure 1. NSW lamb yardings trekked sideways on the week but remain 22% above the seasonal average level. Although the big boost to East coast yardings is coming from SA and Victoria.

Figure 2 highlights the surge in SA lamb throughput at 52,251 head; the highest weekly lamb yarding recorded since 2008 to see throughput levels soar 60% over the five-year average for this time in the season.

Victoria is adding to the East coast glut of lambs with over 120,000 head recorded at the saleyards this week. Victorian lamb throughput was also higher than the five-year average this week, sitting 23.5% above the seasonal level. The increased numbers are currently dragging down each states respective Trade Lamb saleyard indicator, with Victorian Trade Lambs posting a 3.4% decline (600¢/kg cwt) and SA off 6.1% (574¢/kg cwt), based off the MLA mid-week saleyard report.

Stronger than average East coast mutton throughput levels were recorded too. This was aided by higher NSW figures, to see an 8.6% increase in saleyard numbers and the trend continuing to trek along the upper band of the normal range – figure 3. NSW mutton yardings were up 15.7% on the week, pressuring NSW mutton at the saleyard to see them ease 4¢ to 400¢/kg. Softer Victorian and SA mutton throughput is providing some support to prices there with Victorian mutton up 20¢ to 420¢ and SA gaining 8¢ to 410¢/kg cwt.

The week ahead

Price support is likely to remain from continued rainfall forecast across much of Victoria and NSW next week, with much to these two states expecting between 25-50mm. Although, increased Victorian yardings are likely as the Spring flush continues, so that will act to help counterbalance the recent and forecast rains.

On balance, the ESTLI is likely to ease into the week ahead to test sub 600¢, but don’t expect a huge drop.

Weaker supply and higher export prices mean what?

Posted on by Caitlin Dearden

Meat and Livestock Australia (MLA) seem to have sorted out the differences with processors who were holding back data slaughter data.  For the last couple of week’s slaughter data has confirmed what we thought, cattle supply has been tight.

Figure 1 shows east coast cattle slaughter jumping higher in the week ending the 17th November.  This was largely thanks to Queensland, but slaughter rates moved higher in Victoria and NSW as well.  East coast cattle slaughter last week sat just 3% below the same time last year (figure 1).

Slaughter cattle prices remained relatively steady this week, maybe due to the sharp jump higher in 90CL export prices.  The 90CL Frozen Cow gained 18¢ to hit a five month high of 618¢/kg swt (figure 2).  Driving export prices higher has been limited supplies from Australia and New Zealand, along with a weakening Aussie dollar.

The 90CL export prices is now nearly 7% higher than this time last year.  So if export prices are higher than last year, and cattle slaughter lower, prices should be higher, right?  Well no, figure 3 shows the Queensland Heavy Steer Indicator has improved, but it’s near the same price as last year.

As we noted earlier in the week, cattle supplies out of feedlots appears to be keeping a lid on cattle price rises, although the latest jump in export prices could see prices creep a bit higher.

In the west young cattle prices are basically the same as those in the east.  Normally WA cattle prices start to head towards lows at this time of year, but limited supplies continues to support values.

The week ahead

The good wet season is set to continue for Northern NSW cattle producers, with 50-100mm forecast for next week.  This bodes well for young cattle prices to at least hold current levels, and possibly improve.  Finished cattle could see some benefit as well, but processors will have to want to push slaughter above last year’s levels.  The weakening Aussie dollar should help on this front.