Tag: Commodity

Mutton to get expensive, relatively speaking.

Posted on by Caitlin Dearden

Key Points

  • Sheep slaughter is expected to get tight, both in absolute terms and relative to lamb.
  • MLA’s forecast is for sheep slaughter to move back towards the levels of 2016-17.
  • There is less downside for sheep prices than lamb values as we move towards the spring.

As we come out of the winter lull evidence is starting to point towards a recovery in lamb supplies, and a continuing dearth in sheep. We have seen this before, but maybe not to the extent that is expected, though we can still look for clues as to how prices might react.

Lamb supplies are bottoming out, and on the way up, and sheep supplies are heading lower as the flock rebuilds. The difference in supply trajectories as we move into spring will see mutton supplies heading back towards the lows of 2016-17, and possibly even lower.

Figure 1 shows how lamb and sheep slaughter has behaved over the long term, with a 12 month moving average over the top to smooth out the chart.  Since 2000, we have seen a divergence of lamb and sheep slaughter. The move towards meat and dual purpose sheep seeing more lambs being produced, along with more Merino wethers being slaughtered as lambs, has increased lamb supplies and decreased sheep.

We can see that in the last year, lamb slaughter has trended down more quickly than sheep.  However, we expect the rolling average to turn upwards for lambs and continue down for sheep.  With lamb and sheep supplies both falling, relative supplies have remained steady since late 2018.

Figure 2 shows sheep slaughter as a proportion of lamb slaughter which highlights that in relative terms, we only just saw a move in tightening sheep supplies in April.  The average sheep slaughter as a proportion of lamb has been tracking at 43% for the last two years.  Meat & Livestock Australia’s (MLA) industry projections suggest that sheep slaughter will be 35% in 2020 and 33% in 2021.

In 2016 and 2017 sheep slaughter was 30% and 33% of lamb slaughter, so while sheep supply is set to be lower than those years, lamb slaughter will be lower as well.

The last two times sheep slaughter was below 35% of lamb slaughter, mutton prices narrowed their discount to lamb prices. Figure 3 shows the National Mutton Indicator (NMI) spread to the Eastern States Trade Lamb Indicator (ESTLI).

From 2010 to 2012, when sheep slaughter was at its tightest, the NMI ranged between a 20 and 30% discount to the ESTLI.  In 2016 and 2017, mutton values were not as strong relative to the ESTLI, but they did sit in the 20-30% range for the first half of 2017.

What does this mean?

For most of the last year the NMI sat between a 30-40% discount to the ESTLI.  With sheep slaughter falling relative to lamb slaughter, we can expect the NMI discount to shrink over the coming months, as it is likely to return to the 20-30% discount level.

Moving toward spring, the mutton discount is likely to shrink due to falling lamb prices rather than rising mutton prices.  If mutton remains around 650¢, the ESTLI will be 800-850¢.  Looking from the other angle, if the ESTLI falls back to 750¢, mutton will be 550-620¢.  There is less downside for mutton than lamb over the coming year.

Sales down but stocks up

Posted on by Caitlin Dearden

The stark reality of the wool market woes is reported in this week’s AWEX report; the EMI in Au$ terms is 605 cents or 35% lower than the same period last year. As far as supply is concerned, over the past three months there have been 70,000 bales fewer sold than the corresponding period last year. The figures for bales sold year-on-year are also telling, with 250,000 or 16.7% fewer bales having been sold to date, representing not only a fall in supply but also the higher withdrawal and pass-in rates by growers.

The Eastern Market Indicator (EMI) again disappointed falling by 29¢ this week to close at 1,110¢. The Australian dollar firmed to US$0.695 which influenced the EMI in USD terms to fall by a more modest 12¢ to 771¢. Fremantle came back to selling with the Western Market Indicator playing catch-up falling 71 cents from the previous sale to settle at 1,176¢.

Turnover was up with the inclusion of Fremantle to $31.75 million this week, with the average bale value of $1,280 slightly lower than last week, taking the season to date value to $1,972 million.

After growers withdrew 6.8% of the offering, 28,029 bales came forward this week, and with a pass-in rate of 11.5%, 24,804 bales were sold. This was almost 10,000 bales up on last week.

Mecardo reported this week that unsurprisingly wool stocks in wool stores have grown as the fall in demand flows back to the auction room causing a dramatically reduced clearance. In Andrew Woods article this week he noted “The indications are that this state of affairs will persist into the coming spring. In the longer run the stocks will slow the subsequent (price) recovery but not to the extent of the 1990s as production is now low whereas in the early 1990s it was at record levels.”

The Crossbred sector was also impacted by the weaker market with falls of 20 to 40 cents across the microns.

Cardings have been holding reasonably well, but this week the weight of negative sentiment saw the cardings indicator in Sydney retreat 44 cents, Melbourne minus 50 cents and Freo pulling back 19 cents.

The week ahead

Next week all centres sell on Wednesday & Thursday with 31,072 bales on offer. This is almost an identical offering as this week; however, the question for the wool market is one of demand and this for now is weak.

Is it on or off?

Posted on by Caitlin Dearden

The US grain market gets plenty of attention usually, however in recent times it is the clearly dominant story, and for good reason. Politics is impacting, with a massive export program to China under the Phase 1 deal a big story, we also have the current harvest and crop outlook to contend with. Throw in the dealing from the US government of huge farm subsidies and there is plenty to feed grain news stories.

The scale of the farmer “aid” is huge, with the Trump administration announcing a total of $28 billion in aid for farmers in 2018 and 2019, funds the president says come from the tariffs levied on China. The administration secured another $23.5 billion to help American farmers through the $2 trillion coronavirus stimulus package passed in March.”

While this type of support is never going to occur in Australia, it has impacts on our price and market access.

The other big issue is the China Phase 1 deal, and depending which day it is or which diplomat is speaking it is either going ahead “full steam”, or about to be dumped. This is a big factor for all grain producing and importing countries, China agreed to purchase between $40 billion and $50 billion of U.S. agricultural goods in each of the next 2 years.

If the deal goes ahead, the rest of the world’s grain exporting nations will search for other markets; if the deal collapses China will scramble for replacement products.

Harvest in the northern hemisphere is ramping up, and by-and-large the results are positive for supply, which means negative for price. All markets are tending softer, with the exception of the European rapeseed/canola market where production disruptions are impacting locally. However, in Russia and France good harvest reports caused markets to soften. The CBOT SRW contract now looks well settled below 500 c/bush, losing a further cent to 485.5 cents this week.

Domestically the weaker international values combined with continued good weather and the prospect of rain in July to see “new crop” prices ease around $10 for wheat & $3 for F1 barley.

Delivered prices to Melbourne for ASW1 wheat is quoted $350 for “old crop” and $290 per tonne for “new crop”. The ASX Jan 2021 contract pulled back another 3 dollars to $285, while the US CME Dec 2020 contract also continued to retrace, ending the week just under 495 cents per bush.

Buyers seem to be in a comfortable space regarding grain requirements up to harvest and happy to let the market soften, while growers are yet to face harvest prices although the continued good seasonal outlook could encourage selling soon.

Next week?

The market is not providing any signals that prices will improve, in fact, the latest BOM weather outlook has July delivering rain that will only improve the outlook for harvest. We will keep a close watch on harvest yield reports from the Northern Hemisphere, if these continue in a positive trend expect further price weakness.

Mutton EOFY sale

Posted on by Caitlin Dearden

With not all processors operating fully and sheep supply tight, sheep slaughter dropped to the lowest level of the season last week. It’s been a while since we last had sheep slaughter this low, In fact, the last time was back in 2011. Luckily prices are more robust now, but the reduced buying interest saw modest falls for mutton.

Just 37,998 sheep were processed in the week ending the 19th of June (Figure 1). While it was 53% under the five year average for this time of year, we know it’s far from an average season.  What does make the better comparison is the 2011 season, where the same week saw just a 3% difference in sheep slaughter levels.

There was enough room for lambs to be processed though. Lamb slaughter held steady at recent levels with most yards reporting a slight lift in lamb supply, particularly heavier lambs.

Victoria, Tasmania and parts of Western Australia all received a good drenching in the week passed, and all saw mutton values dive. The result was a fall of nearly 50¢ for the National Mutton Indicator to 626¢/kg cwt (Figure 2).

There were mixed reports for lamb categories between yards this week, but most moved slightly lower. The Eastern States Trade Lamb Indicator (ESLTI) lost 7¢ on the last week of the 2019/20 sale season to finish at 870¢/kg cwt, just 3% below last years level.

Heavy lambs had a noteable fall of 12¢ to 827¢/kg cwt on the east coast, tested by another week of uncertainty around retail and export demand. A 31¢ decline was recorded for Restocker lambs. Merino lambs were the only category to see a gain on the week, up 14 cents to 804¢/kg cwt.

Next week:

Earlier in the week we looked at how lamb and sheep supply is likely to play as we move closer to spring, and how prices might react (view here). Lamb supplies tend to stay relatively steady at this time of year but rebuilding efforts will keep sheep in paddocks and provide some support to both mutton and lamb prices.

Higher yardings see a slip from record values

Posted on by Caitlin Dearden

A return to more normal yardings last week had the typical effect on prices. The record young cattle prices from last week didn’t hold, with the correction pulling the Eastern Young Cattle Indicator back to levels of the week earlier.

East coast saleyard throughput levels rebounded from the previous weeks low with all states contributing to the lift. A 34% rise saw 46,548 cattle yarded for the week ending the 19th of June.

The number of cattle slaughtered in east coast yards last week was marginally (2%) down on the week prior. Queensland was the only state driving down the figures with 6% fewer cattle slaughtered compared to the week prior. A total of 123,125 cattle were processed which was 20% under the same week last year.

The Eastern Young Cattle Indicator (EYCI) lost 2% on the week, returning back to 754¢/kg. The National Heavy Steer also lost some of last weeks gain, falling 15¢ to 367¢/kg lwt. There was a show of support for cows with the National Medium Cow price receiving a small lift of 5¢ to 279¢/kg lwt. Processor steers ended with week higher again, up 5¢. While Feeder yearling steers lost some ground, moving back under the 400¢ mark to 397¢/kg lwt.

The 90 CL Frozen cow price crept lower last week, falling 1% to 747¢/kg in AUD. The Meat & Livestock Australia Steiner report indicated the “imported beef trade has become especially sluggish”. Slowing beef demand in the US and higher production as processing capacity is back to normal is putting pressure on US cattle values.

Next week:

Recent rain in southern parts of the country will no doubt be reflected in next weeks yarding figure release. Looking at the BOM forecast for the next week, there’s a good chance of another soaking in Tassie and the WA coast, however, the rest of the country is expected to remain fairly dry which won’t do much for demand.

Lamb supplies on road to recovery

Posted on by Caitlin Dearden
  • The latest sheep and lamb industry projections show a slight tightening in annual sheep and lamb supplies.
  • Second half lamb slaughter could be marginally higher than 2019.
  • Forecasts suggest we are in for two years of tight sheep supplies.

As we move through the depths of winter and tight ovine supply, attention is turning to the spring and summer. With winter lambs hitting the ground now, and many of the new season supply coming in the next two months, we take a look at what we might see in terms of lamb and sheep supply for the rest of the year.

Meat & Livestock Australia’s (MLA) industry projections put some figures around total sheep and lamb supply for 2020, and it obviously takes into account what has been slaughtered already.  As such we deduct slaughter to date to give us a rough idea of what MLA think is to come for the rest of the year.

April lamb slaughter came in well below last year’s levels. Coming in at 1.58 million head, April lamb slaughter was 16% below last year, but it has been lower recently, in 2017.

Based on MLA’s weekly slaughter statistics, it looks like May lamb slaughter will be higher than April, but much lower than last year. Lamb slaughter in the first 2 weeks of June has also been lower, and it looks like we might be headed for the tightest slaughter month since at least 2005.

If we take what has been processed to date, and deduct from the latest forecast of 20.6 million head, the supply in the second half of the year looks like figure 1.  If it comes to fruition, lamb supply from July to December will actually be 3% stronger than in 2019.

Figure 1 also shows how the 2021 forecast will pan out with average seasonality.  With a return to more normal seasons, we should see similar slaughter to this year in the first quarter, and stronger levels for the remainder of the year.

There is no such increase on the horizon for sheep supplies.  The second half of 2020 is expected to see slaughter rates 35% lower than in 2019.  Sheep supply is expected to increase in the spring, but it will still be well off the strong levels seen last year.

The forecast for 2021 sheep slaughter is the same as in 2020, at 6.5 million head. Figure 2 shows that normal seasonality will see 2021 slaughter track at similar levels to this year.

What does this mean?

We have noted before that we are currently seeing the low for lamb supply, with year on year increases expected from here. It will be up to demand to drive lamb prices in the spring. Supply will be historically low, but it is hard to see demand matching the levels of last year, and therefore it’s hard to see prices matching either.

Tight sheep supply might save lamb prices. The sheep supply dearth will leave some more space for lamb, if export demand is there to soak them up.

Low yields weighing on the market

Posted on by Caitlin Dearden

The market was again cheaper this week, with the large supply of “low yielding” wool continuing to attract discounts negatively impacting on the EMI as buyers struggled to fit these types into orders. While the drought impact has caused yields to be lower, this week in Mecardo Andrew Woods reported that yield was 3 – 4% lower compared to previous droughts.

The Eastern Market Indicator (EMI) eased again by 32¢ this week to close at 1,139¢, while the Australian dollar also softened to US$0.69. The EMI in USD terms also fell 31¢ to 782¢. Fremantle again had a recess with the Western Market Indicator unchanged at 1,247¢.

Turnover was back below $20 mill to $18.50 million this week, however, the average bale value of $1,307 was $150 per bale up on last week, taking the season to date value to $1,941 million.

After growers withdrew 7.2% of the offering, just 15,800 bales came forward this week, and with a pass-in rate of 10.8%, 14,146 bales were sold.

It was noted this week that area planted to crops has increased year on year, with NSW up 95% on last year to 3.7 million hectares. (Read about this here on Mecardo).

This is confirmation of our concerns that the continued shift to grain production will continue now that the drought has broken, with the challenge for Merino sheep to regain lost acres going to be difficult. Any increase in wool supply in the medium term is likely to be modest at best.

The Crossbred sector ended a positive run with across the board falls of 20 cents.

Cardings proved more resilient despite Sydney reporting a 16-cent fall, Melbourne was dearer by 7 cents.

The week ahead

Next week Fremantle resumes and all centres sell on Tuesday & Wednesday with 30,240 bales on offer.

Supply and price edging lower for lambs

Posted on by Caitlin Dearden

Lower supply wasn’t enough to put a halt to the softening lamb prices this week, with what appears to be wavering demand. Small sheep numbers on the east coast however, did help to lift mutton prices.

So far in June, east coast lamb slaughter has trended 12% below the five year average, and 4% below the tight supply year of 2011. The “tight supply getting tighter” situation continued last week with lamb slaughter down 6% on the week prior (Figure 1).

East coast sheep slaughter was steady for the week ending the 12th of June.  59,902 head were processed which was within the lower end of the 70% range for this time of the season.

Both lamb and sheep yardings were lower again, for a combined throughput of 161,175 head at east coast saleyards (Figure 2). This was 17% below the five year average level for this time in the season. The big drop came from NSW which saw 30% fewer lamb yardings last week compared to week earlier numbers.

Weaker lamb yardings was met with weaker prices. The Eastern States Trade Lamb Indicator lost 24¢ to come back under the magic 900¢ threshold, ending at 882¢/kg cwt. Trade lambs fared better in Western Australia, up 13 cents to 817¢/kg cwt.

Sheep continued to receive support, resulting in a 2% rise in the National Mutton Indicator on the week to close at 672¢/kg cwt.

Next week:

Declining supplies and softening prices is not a good sign for demand. We won’t sound the alarm yet, but the test will come in July when lamb supply starts to ramp up.

Fact or fiction?

Posted on by Caitlin Dearden

Sometimes the hardest thing to do when looking at markets is to decipher the real message from the published message. There is a lot of rhetoric around the China imports and US exports of grain and beans, with polarized stories representing positive and negative positions. It seems that “fake” news is a distinct possibility.

Usually this misinformation revolves around supply, but its intention is to influence market prices. The best approach in understanding the real picture is to refer to the data.

The University of Illinois in their Farm Policy News (FPN), reported that last week was the largest sale of soybeans so far this marketing year was enacted. While 39% of this was to China, a further 39% was to “unknown”, with FPN speculating that this “very likely a lot/most to China” also

When combining other “facts”, the answer becomes even more obvious. Under the agreed trade deal between China & the US, China agreed to take $36.5 billion in American agricultural goods in 2020. In the first 4 months with the disruption as a result of COVID-19, only $4.65 billion was exported.

Both sides have said they have a commitment to honoring the phase 1 deal, so expect a ramping up of activity in the next couple of quarters.

In related news, FPN reported “The American Farm Bureau Federation on Wednesday sent a detailed list of recommendations to Congress to help farmers, stating that even though lawmakers had provided earlier aid, more is needed because of economic losses facing the industry.”

This aid is running into the billions, and with corn prices falling 50 cents per pound to around US$3.20, the National Corn Growers Association calculates a loss of $49 per acre, they are asking for more.

Subsidies are in the news at the moment, (see China barley tariff report) but the consequence of this US government support will be to incentivize US growers to plant, causing the supply demand message to be muted and the continuous high level of world stocks to remain.

The ASX Jan 2021 contract slowly eased this week to end 10 dollars lower at $288, while the US CME Dec 2020 contract pulled back further, ending the week just under $497.

Domestic delivered prices tended to firm this week as buyers sought supply while growers were cautious in accepting old crop pricing, with it still a month or two away before producers have the confidence to sell “new crop”.

Next week?

Weather is all important in influencing grain prices, especially at this time of the year the weather in the Northern hemisphere. This week the news from the US is that after a period of dry the forecast is for rainfall over the next 7 days is predicted, this had the expected result of causing the market to soften.

Domestic focus drives an EYCI record

Posted on by Caitlin Dearden

Young cattle prices continued to climb this week to hit a new high, taking no notice of lower export market values. The local supply situation and decent rainfall forecasts has saleyard prices trading back at global market values.

The Eastern Young Cattle Indicator (EYCI) lifted to find it’s new record on Wednesday at 772¢/kg cwt. This solid rise pushed the EYCI just a few cents above the previous high set in March.

Tight supply helped lend support to most categories of cattle. The heavy steer saw the best result with a weekly gain of 9% to close at 382¢/kg. Medium cows rose 3% to 271¢/kg lwt. It was only the Restocker Steer category that softened, albeit only marginally, down just 5 cents to 271¢/kg lwt. Both Processor and Feeder Steers found some support.

East coast cattle yardings saw a significant drop on the week as shown in Figure 2. Just 34,744 cattle were yarded in the week ending the 12th of May, which was a 29% drop on the week prior. Much of the fall was driven by Queensland with nearly 10,000 fewer head presented, but all states contributed to the tighter supply.

Slaughter levels rebounded slightly after last weeks low, rising 5% to see 126,034 head processed on the east coast. This was 12% under the same week in 2019.

Next week:

There isn’t much rain on the short term forecast for anywhere outside of Victoria, Tassie and the coastal fringe of WA, and even that looks set to be light. However, if slaughter and yardings stay this tight we will continue to see support for prices at the saleyard. How long tight supply can prop up saleyard cattle prices despite weaker export markets is the unknown we’re waiting to play out.