Tag: Commodity

Sheep not out there or growers holding strong.

Posted on by Caitlin Dearden

Lambs continue to flow to the market, keeping a lid on prices. However, mutton values have been on the rise and narrowing the gap, as despite the dry weather, the supply of sheep is either not there or being held tight.

Figure 1 shows that sheep slaughter remains well above last year’s levels, with the short week kill roughly equivalent to the full weeks this time last year. However, the usual autumn slaughter downtrend is in place as supplies remain similar to the five year average.

Lamb slaughter hasn’t been falling, it hit a peak in the week before Anzac day, and last week was 14% above the short weeks at Easter.

The result of lower sheep slaughter, and stronger lamb slaughter, is a narrowing gap between the pricesFigure 2 shows a mild upward trend for mutton since February, with the 10¢ gain this week pushing it to 437¢/kg cwt.

The Eastern States Trade Lamb Indicator (ESTLI) eased marginally this week, losing 5¢ but remaining above the lows hit a fortnight ago.

The mutton discount to the ESTLI has held above 40% for the last three weeks. Mutton isn’t as strong as the 20-30% spread seen this time last year, but given the season, the relative tight supply might tell a story.

Either there are not the sheep out there to sell in response to the dry weather, or growers are confident enough about prices, and profitability to feed sheep through the feed gap.

The week ahead

There is again a little bit of rain moving through Victoria. Enough to confirm a break in some areas where there are a lot of sheep, but likely not widespread enough to see sheep supply tighten dramatically. Lamb supply can’t really rise from here given the extraordinary levels we’ve seen, but prices could continue to track sideways for a little while yet before the winter premiums kick in.

More slaughter this year, but same later.

Posted on by Caitlin Dearden

Meat and Livestock Australia (MLA) released their quarterly projections this week, and while there were some revisions to this year’s projections, the next three years are expected to be largely the same as was projected in January. The herd growth is expected to be a little weaker, but it’s not really showing up in slower herd growth based on the MLA figures.

Figure 1 shows the only real major change in MLA’s projections since January, being the increase in slaughter for this year. The strongcattle slaughter to date has seen MLA lift 2018 slaughter by 1% to 7.475 million head. The lift in the slaughter projection doesn’t account for all the extra cattle slaughtered so far, and we think the annual number might be a bit higher than this projection.

While slaughter forecasts are still well below the bumper numbers of 2013-15, it is still the fifth highest of the last 10 years. The higher slaughter this year isn’t expected to result in fewer cattle coming to market over the coming four years. MLA have left forecasts for 2019-2022 unchanged, with the gradual increase in response to an increasing herd.

Similar to slaughter, MLA have left their projections for the size of the herd unchanged.  Figure 2 shows minimal change in the forecast growth in the herd. The Australian cattle herd is expected to grow by around 1-2% per year until it reaches a 45 year high in 2022.

It’s highly unlikely that the herd will grow in such a uniform manner, as seasonal conditions often throw projections out the window. The current dry spell is likely to see higher slaughter in the short term, slowing of the herd rebuild, and weaker slaughter in the medium term.

Carcase weights are also expected to grow after having a setback this year. Dry weather and lower numbers of cattle on feed should see average slaughter weights fall this year. MLA are expecting carcase weights to grow to a record high in 2022.

What does it mean/next week?:

As long as cattle remain relatively strong, the herd should continue to grow. The current very strong slaughter is still seeing cattle prices above the pre-2015 records, so we can say that cattle prices are still strong.

MLA obviously expect cattle prices to remain strong, as the herd and carcase weights wouldn’t grow unless there was an incentive to produce more beef. The slaughter projection for this year might be a bit low, and if we end up with higher levels, it should see lower slaughter next year.

Key Points

  • MLA’s quarterly projections show a small increase in 2018 slaughter, but no change in later years.
  • The herd and carcase weights are expected to grow to at least 40 year highs by 2022.
  • The stronger slaughter now might see annual rates surpass projections, taking cattle from the 2019 season.

A new hope in the wheat market

Posted on by Caitlin Dearden

The force is strong in the wheat market, with positive pricing signals coming forth. The northern hemisphere “weather market” period is always the most volatile time for pricing, with the majority of the worlds crop being in the growth phase. After six years of strong production, the weather strikes back.

The futures market continues to rally (figure 1), with its fifth straight session of gains. The market is now 12% up on the close of trade last Thursday. The annual tour of the Kansa wheat belt released the results from their annual crop tour, with yields forecast at 37bpa. Last year the yield was 47bpa, after suffering through terrible snow storms in early May, and the five-year average is 41bpa.

As Kansas is the largest wheat production area in the US, this has dire positive consequences for prices, and now there is limited potential for substantive increases in yield in this region.

The wheat market is now attracting the focus of the dark side, with speculators starting to pour money into ag commodities. In figure 2, the commitment of traders report from last week shows that since early February, bullish sentiment has increased, with the overall speculator position at -50k contracts, whereas short contracts were at -165k. The updated data on trades sentiment will be released over the weekend and will undoubtedly show a decrease in the short position.

At a local level, much needed rainfall fell across much of the country in the past 24 hours. This will bring relief to many, after a poor summer rain season for the most part. It is definitely too early to determine the outlook for the crop, but this rain for many will help. In figure 3, we can see that basis levels are remaining strong, as buyers continue to pay a premium for access to stock. If the potential for the crop improves in the coming months, then this premium is liable to deteriorate.

Was it turn-around week?

Posted on by Caitlin Dearden

The wool market opened the week with a continuation of the softer trend of last week, but on Thursday demand returned, and the market looked to have a completely different tone.

This was best reflected by activity on the Fremantle auction floor; the close of last week in Fremantle was definitely “bearish”, while this week it acted like the “bull”, closing strongly.

We take more notice of the Fremantle market when forming a view of next week’s market, with its 2-hour time difference a strong finish is positive for next week, while a weak finish doesn’t provide a lot of confidence going forward.

With a similar offering to last week of 42,794 bales, the Eastern Market Indicator (EMI) lost 10 cents to 1836 cents, while in US$ terms the EMI gave up 17 cents over the week to settle at 1381 cents (Figure 1). In the Fremantle sales, the Western Market Indicator (WMI) slipped 10 cents on the opening day before fully recovering on Thursday to end the week up 3 cents to 1952 cents.

The AU$ held steady around the US$0.75 mark, after slipping below the US$0.76 cent mark last week.

In line with the slightly softer market in general, the pass in rate lifted to 5.3%. The varied pass-in rate makes interesting viewing; in Sydney it was 3.2%, Melbourne 5.3% while in Fremantle, despite the stronger market, growers were prepared to pass-in 8.2% resulting in 40,500 bales eventually sold.

On the back of last week’s currency induced rally that provided wool sellers with new high’s, this week’s market can be taken as a positive with little resistance to the market levels despite the Wednesday easier market.

AWEX reports that buyers are finding it difficult to “average” their purchases with the increasing percentage of lower yielding and poorer style wools offered. Of course, this is making more attractive any lots that are of good style and yield. Again, these types were reported as attracting strong competition.

There was an interesting comment in the AWEX Sydney report on Wednesday; “19 microns and finer had good support for the Non-Mules and Pain relief lots”, perhaps reflecting specific demand for these wools. For some time, we have been interested in detecting any premium for non-mulesed or pain relief identified lots; this is a rare comment from AWEX that it was noticeable in the auction.

Crossbreds retreated after five weeks of positive gains, while the cardings were generally unchanged except for W.A. where the correction was a re-alignment with Eastern markets.

Skirtings were reported as steady for the week, although again the AWEX report contained a proviso that lots with less than 3% VM were keenly sought.

With just over 40,000 bales sold this week, (seasons average 41,868) we expect it will be difficult to retrieve sales above this level until the Spring. There are 38,200 bales rostered for next week, however the roster falls to an average of 35,000 bales for the following weeks. With the average clearance since January of almost 42,000 bales, the seasonal average can’t help but fall in coming weeks.

The week ahead

The market had a go at correcting the strong recent weeks, but by week’s end it was back to business as usual.

This along with tightening supply (38,000 rostered for next week) bodes well for the immediate future of wool prices in general.

There is no ho-hum in sorghum.

Posted on by Caitlin Dearden

It’s been a while since we looked at the sorghum market, and its going gangbusters. A series of events have transpired to raise sorghum pricing levels for producers, although unfortunately for feed lotters this is raising their overall costs.

In the 2017/18 season, northern NSW and Queensland were impacted by very poor growing conditions, this obviously led to an overall decline in yields. The NNSW and QLD regions are dominated by the domestic market, with the bulk of the countries cattle feed lotters, and a high number of pig farms, in the region.

The drought has caused domestic buyers to pay up in order to compete against the export market resulting in ships of barley being sent from South Australia for feed purposes. In figure 1, the seasonality of sorghum on the Darling Downs is displayed. As we can see, the advance in sorghum pricing has been astronomic since September 2017. The current average price for April is $92/mt above average.

At this point of the year, the seasonal pattern is for a decline in prices from Jan-Apr as the summer crop is taken into account. This season has been very much against the mold. It is worthwhile examining how this compares against the long term.

In figure 2, the weekly price from 1997 to present is displayed. As we can see, the only years to achieve these current pricing levels were in 2002 and 2007. This coincided with major droughts, and also in 2007 the height of the commodities boom. There is no denying that these prices represent close to the best prices in twenty years.

The next factor, which is yet to play out, is China. In the past fortnight China concluded their investigations into allegations of sorghum dumping by the US. This has resulted in a required deposit of 178.6% of the shipment value. This has made US sorghum imports into China unviable, and ships in transit have been diverted to alternate destinations.

In figure 3, we can see the influence of China on the sorghum market. Prior to this decade, China barley rarely imported 1% of the global trade in sorghum. The past five years have seen them import on average 73% of the global trade!

If demand for sorghum continues in China, and high deposits remain in place for the US, then sorghum producers have some interesting times ahead of them.

What does it mean/next week?:

The sorghum market is being assisted by the lingering effects of the 2017/18 drought in NNSW & QLD, high levels of stock on feed & political tensions between the US and China.

Prices are currently at very high levels, but it remains to be seen how long they will continue their upward trajectory.

Key Points

  • The drought in 2017/18 is continuing to have an impact on prices of all cereals in NNSW/QLD.
  • A high number of cattle on feed in QLD, continues to provide strong demand for cereals.
  • Anti-dumping deposits by China are making US sorghum imports unviable.

Good timing for a short week.

Posted on by Caitlin Dearden

With ANZAC day falling in the middle of the week, cattle supply was well down. Young Cattle yardings halved, and young cattle prices managed to remain steady. Other cattle categories followed a similar trend, as the market treads water waiting for rain.

The Eastern Young Cattle Indicator (EYCI) managed to find some support this week on the back of much lower cattle yardings. The lack of sales on Wednesday obviously helped see yardings fall, but there was also a major pull back in supply as producers baulked at the lower prices.

Figure 1 shows the yo-yo that has been EYCI yardings over recent weeks. It will be interesting to see where yardings head when we get back to a full week and with persistent low prices.

The EYCI did manage to steady however, with young cattle prices in Queensland, Victoria and NSW all managing to hold their levels at just under 500¢/kg cwt for the 270-290¢/kg liveweight range.

A few anecdotes we heard this week suggest light and restocker cattle might have found a base. There have been a few big yardings around, and prices managed to move higher as many backgrounders have decided they are cheap enough to take a punt on some rain arriving soon.

There is little doubt we will see a price rise when it does rain, but the trend in 2012 (figure 2) is looking eerily similar to current price moves. The market was then coming off record highs, similar to what we have seen recently. A lack of spring rain obviously helped the end of year fall.

The week ahead

So we wait another week for some rain to appear on the forecast. The longer we wait the more pressure comes on prices as potential autumn growth declines. It’s only five weeks until winter. Export prices have declined, but this doesn’t eliminate upside, with the 90CL still north of 550¢, which is a price many growers would take for their cattle at the moment.

Prices regain a foothold despite firmer supply.

Posted on by Caitlin Dearden

National lamb and sheep prices at the sale yard closed the week with small gains, although on a state level the story was more mixed. NSW, Victorian and Tasmanian categories performed relatively well, while SA and WA posted a few declines across their lamb and sheep categories.

The Eastern States Trad Lamb Indicator (ESTLI) staged a solid recovery, up 4.6% to 597¢. East Coast Mutton improved too, albeit slightly more muted with a 2.4% gain to 426¢/kg cwt – figure 1. In Victoria most categories of lamb and mutton posted gains between the 0-4% range, although Vic Merino Lamb were the star performer with an 18% lift to 591¢. NSW lamb categories all scored a rise within magnitude of 1-3%. NSW Mutton was the best on ground, recording a 5.3% lift to 415¢.

Heading to SA, and all reported sale yard categories apart from SA Trade Lambs were unable to break into positive territory, with SA Mutton the laggard – off 18% to 292¢. Further West the price declines continued to hamper most lamb types, the exception being WA Merino with a 3% lift to 604¢. The West Australian Trade Lamb Indicator (WATLI) was nearly unchanged at 612¢, while WA Mutton was slightly softer to post a 3.6% decline to 404¢.

Considering the strong supply continuing to come out of NSW which is providing a boost to the combined East Coast Lamb and Sheep slaughter levels, the price improvements on the week are a sign of robust demand. Figure 2 highlights the elevated supply scenario with the combined lamb and sheep slaughter posting a second consecutive week above 510,000 head. This level of slaughter across the East coast is 9% above the seasonal five-year average and a 40% over the same week in the 2017 season.

Figure 3 gives a clue as to what is underpinning the current demand. Offshore players are benefitting from a softer A$ over the first quarter of 2018 and keeping Australian lamb and mutton competitive in overseas terms despite the relatively high domestic prices. Indeed, since the January peak in the ESTLI in US$ terms at 550US¢, there has been an 18% decline to finish this week at 450US¢/kg – placing the ESTLI near the lowest levels seen for offshore buyers in over 10 months.

What does it mean/next week?:

No rainfall is forecast for the nation beyond 10mm in the coming week, providing little relief for producers looking for the Autumn break. This is likely to see elevated supply continuing to keep a lid on any significant price gains and, while the A$ continues to trend lower, offshore demand should remain robust.

It’s looking like a bit of sideways price action for the time being, that is, until the rains arrive in the South to deliver a bit of a lift, both to spirits and prices.

Weaker Au$ helps wool market.

Posted on by Caitlin Dearden

The Au$ slipped below US$0.76 this week and provided a lift for the wool market. Tuesday the market opened for the week and presented strong price lifts across the board. The EMI rose 22 cents, but the story was not so bright when viewed in US$, the EMI actually lost 20 cents.

With Wednesday being a holiday for ANZAC Day, once the market resumed on Thursday Merino types all eased back. However, strength was still noted in the crossbred section where they posted consecutive days of stronger prices.

With a much-reduced offering compared to last week of 42,621 bales, and a softening Au$, the Eastern Market Indicator (EMI) lifted 21 cents to 1846 cents, while in US$ terms the EMI gave up 27 cents over the week to settle at 1398 cents (Figure 1). Fremantle sales also fared better, the Western Market Indicator (WMI) gained 15 cents to 1949 cents.

The AU$ was a key influence on this week’s market. It’s held steady over the past couple of weeks at US$0.77 or better, however this week it slipped below the US$0.76 cent mark.

In line with the generally stronger market, the pass in rate also fell to 3.8% on Tuesday and 3.1% on Thursday; while nationally 3.6% was passed-in for the week.

This week’s currency induced rally has provided wool sellers with new high’s, and welcome strong prices for fine wool types.

Buyers are showing concern regarding future offerings, with a feeling that there may be less wool available than previously expected. Reduced fleece weights, and the earlier shearing of some sheep in the back half of 2017 to reduce stocking rates, both on account of the dry conditions, has some forecasters warning that offerings could slip below the offerings of the same period last year.

To date this season, average weekly sales have been around the 42,000-bale mark, up 3,000 bales per week on season 2016-17. This gap may close in the remaining months of this season.

It is interesting to look at the medium types though, our records go back to July 1981, and over this period the 21 to 28 MPG’s have never been higher. Much of this market strength is due to the diminishing supply of these types; it is however a strong underpinning of any finer MPG’s and the wool market in general.

In fact, crossbred types were the standout for the week, especially the finer ones. They now sit back at or above the previously set recent highs.

Skirtings were reported by AWEX as receiving increased buyer interest across the week and were quoted dearer on each selling day.

Merino Cardings had another good week, however a more modest improvement across the three cardings indicators, but overall strong and solid demand.

The week ahead

There are an optimistic 43,315 bales rostered for next week, however the roster falls below 40,000 for the following weeks.

The market signals this week was that fine types were expensive and if not for currency relief we would have seen prices lower.

Medium and fine crossbreds however, along with skirtings and cardings seem to be bounding along, a case of glass half full for growers but at a time when overall it’s good to be a seller.