Tag: Commodity

All harvests eve

Posted on by Caitlin Dearden

Australian is on the cusp of being full blown harvest, with all states (ex Tasmania) showing some activity. In the coming weeks, harvest proper will be upon us, and we will start to see how accurate the crop forecasts have been.

The futures market saw a sharp drop mid week, with the December 2017 contract falling to contract lows (fig 1). This follows the seasonal pattern which has emerged over the previous two years “Wheat seasonality”. The lack of fresh data, along with a global glut of wheat has given rise to a continued bear market. However, overnight we saw a strong rally (fig 2) which recovered most of the losses of the past few days. This was likely a result of speculators taking profits from short positions, potentially (or hopefully) a sign that the market may be reaching a floor.

The bulk of the harvest is currently centred around NNSW, Queensland, Geraldton & Esperance. In the coming weeks it will move into full swing in the other areas. At present there have been some surprises, with growers getting better results than expected in Qld & NNSW, however the outcome is still going to be well below average.

In local pricing (fig 3), the benchmark APW1 price has seen falls of 1-2%, with South Australia seeing the largest falls. The market however continues to show very strong basis levels, and there are potential downside risks as outlined in our article, “Let’s look at historical basis”. The lack grower forward selling this season, could lead to a pressure on harvest pricing, which we have seen in recent years.

As more certainty on production comes to light, it is advisable to consider trading some physical wheat, as a cover for if basis levels do fall.  At present due to the unknown quality profile, it is prudent to continue to utilise multigrade contracts.

Next Week

In the next week the November WASDE report will be released, it is not expected to bring many surprises and the market will continue to have a neutral to bearish tone. It is unlikely that large market rises will occur prior to the start of the northern hemisphere risk market.

WATLI succumbs to supply, can the east hold on?

Posted on by Caitlin Dearden

Sheep and lamb yardings had another strong week, with Victorian lambs starting to run. Yet prices continued their solid reluctance to fall, maintaining levels well above last year in the east. Things are easing in the west, but also remain better than last year.

Figure 1 shows east coast lamb yardings for the week ending the 27th, and individual yardings suggest that Victorian lambs are starting to hit the market. Ballarat yardings were up to 40,500 head, while Bendigo remained strong at 34,000 head.

Usually the Victorian lamb run is what pushes yardings higher in November and December, but now it is just adding to already above average yardings in South Australia and NSW. Yardings in WA jumped 41% higher, and are well above normal for this time of year (figure 2).

Higher yardings in WA saw the West Australian Trade Lamb Indicator (WATLI) fall sharply, losing 44¢ to 521¢/kg cwt (figure 3), a nine month low. Despite being lower, the WATLI is 80¢ stronger than this time last year, even with higher yardings.

Last year the ESTLI followed the WATLI lower, after about a month delay. We keep saying we expect the ESTLI to ease in the spring, but there is only a month of spring left, and prices remain strong.

Mutton markets were the star performers this week, with the Victorian Mutton Indicator moving back to 450¢/kg cwt, and NSW not far behind. In contrast SA mutton is lagging around $1/kg cwt behind, or $20 on a 20kg cwt Merino. This suggests that supply in SA is starting to outstrip slaughter space in SA.

The week ahead

We keep saying the ESTLI can’t defy gravity for too much longer; and with cheap lambs in WA, export demand might start to come under some pressure. Last year we saw that the market declined 60¢ from the start of November through to Christmas as supplies ramped up.

Demand is stronger this year, and a 60¢ decline would see markets still at historically strong levels, but price will make current January forward contracts look attractive. More on this next week.

Expensive stores should turn a profit on grass

Posted on by Caitlin Dearden

Trade Lamb prices are continuing to defy gravity, and carrying other categories along with them.  Store lamb prices are at record highs for October, and some forward contracts have just been released.  The equation is pretty simple for January, when prices can be locked in, with profits likely to be smaller for lambs sold in December.

The recent strength in lamb prices has restockers starting to get a bit excited.  Figure 1 shows a strong rally in the National Restocker Lamb Indicator last week, as it sits at 699¢/kg cwt.  In dollar per head terms the indicator is sitting around $105 per head.

There is usually plenty of variability in the restocker price in ¢/kg terms, as the average weight can change week to week, and sometimes this doesn’t impact the dollar per head price as significantly as it would for trade or heavy lambs.

Restocker lambs are now at a record level for this time of year, and sitting around 90¢, or 15% above the same time last year.

If we assume trade lambs weigh 20kgs cwt, and restocker lambs 16kgs, and skin values is the same, the spread between restockers lambs and the ESTLI in dollars per head is shown in figure 2.  The ESTLI premium has been creeping lower, and at the end of last week sat at $12.4/head.  Basically this means 20 kg cwt trade lambs were making just $12.4 more than 16kg cwt restocker lambs.

Generally a narrow spread between restocker and trade lambs is driven by abundant feed, as producers opt to hold lambs in favour of weight gain, forcing store buyers to pay more.  So the question is whether there is any money in buying lambs are current prices.

Figure 3 shows some rough numbers on buying lambs at current prices, and selling at our worst, expected and best case price scenarios.  Finishing on grass, and getting the current trade lamb price will provide a pretty good return, which is what buyers are banking on.

What does this mean?

Getting the current price of around 630¢ would be our best case scenario, as we think there will still be a flush of lambs, and lower prices in December.

Our expected price for December is 580¢, which is likely to be close to break-even after costs are taken out, while a loss will be made at last year’s December price of 520¢/kg cwt.  Obviously it is hard for those feeding lambs at the moment, with store lamb prices, grain prices and finished lamb prices not really stacking up unless prices continue to rise.

Just yesterday forward contracts were released for January ranging from 580¢ to 630¢.  If lambs can be carried that far on grass then a profitable outcome should be able to be locked in now.

Rain soaks up supply

Posted on by Caitlin Dearden

Most of the eastern states received rainfall this week and despite higher throughput young cattle prices continued to climb, with the benchmark Eastern Young Cattle Indicator (EYCI) closing up 1.8% to see it at 577.50¢/kg cwt this week.

The improved young cattle prices in addition to a 5.3% lift in cattle throughput along the East coast saw this week’s yarding figures back near longer term average levels at around the 48,000 head region – figure 1.

This is the highest weekly yarding figure reported in nearly two months which suggests demand is managing to keep up with the extra saleyard volumes. Indeed, since the start of October weekly East coast cattle yardings have lifted 93% and over the same time the EYCI has managed to gain around 8% – it’s amazing what a bit of rain can do.

The price jump not just limited to East coast young cattle with the WYCI lifting 7.9% on the week to see it reach 568¢/kg cwt. Eastern and Western young cattle prices beginning to converge toward the key beef export indicator with the 90CL frozen cow holding ground over the last month between 575-595¢kg CIF and currently sitting at 587.4¢ – figure 2.

The week ahead

The rainfall forecast for next week shows falls of up to 50mm across much of Eastern NSW, with lighter sprinklings across the rest of the Eastern and Western seaboard – figure 3. Anecdotal reports out of the US suggest the 90CL could see some further gains in the coming few weeks as competition between domestic demand on the back of Thanksgiving celebrations, and increased offshore buying (particularly out of Asia) make an impact.

The prospect of continued rainfall and a solid 90CL export price should continue to provide further support to cattle prices locally over the next few weeks.

It’s a great time to be a wool producer

Posted on by Caitlin Dearden

With one of the larger offerings for this year the market performed very strongly this week. Every category posted gains. Records were set with the 19.5 MPG posting its highest level since its 2001 listing, and cardings topping 1300 cents in Melbourne, a record against our records going back to 2002.

The Eastern Market Indicator (EMI) rose 45¢ on the week to 1,623¢ with AWEX reporting this a new record high in Australian dollar terms. The Australian dollar was unchanged on the week, with the EMI in US$ terms posting a rise also of 35¢ to end the week at 1,252¢. The EMI in US$ terms is edging however it is still well off its previous record of 1504 cents set in July 2011.

Only 2.2% of the offered bales were passed-in, resulting 45,193 bales cleared to the trade. Again, this is a strong signal of the strength of the current market.

Whether these prices are a result of AWI market initiatives, or a response to reduced supply, or maybe just a normal improvement in the demand cycle, growers who have wool to sell now are receiving “best ever” wool cheques.

The rally also carried across to the inferior types; as is usual in a strong rally, wool carrying higher mid-breaks, or lower tensile strength, or greater VM got carried along by the surging market.

We are now at levels where predictions of future price directions become a bit of a guessing game. Will buyers (more importantly their customer processors overseas) pull back from this rally and we see the market retrace, or is this rally unstoppable and further increases are imminent?

Either way, wool growers should continue to sell as soon as wool is tested, and also take a close scrutiny of forward price bids to look for cover for some production for future clips.

The week ahead

42,722 bales are rostered for sale next week across the three selling centres (Figure 3). The roster lists 44,000 and 40,000 for the following weeks; based on current demand this should pose little challenge for the market to absorb.

A look locally and globally

Posted on by Caitlin Dearden

The market continues to follow a similar pattern to recent weeks. In this week’s comment, we look at futures & basis levels. In addition, we look at where our main competitor (Russia) is pricing its wheat. 

When it comes to wheat markets, we are in the dead zone. A time when there is a lack of fresh data to give the market a strong direction. In figure 1, Chicago wheat futures are displayed in both A$/mt & US$/mt. In A$ terms the Dec futures are up $7/mt week on week, however remain $1.7 down since the start of the month. The fall in the A$ against the US$ has helped balance against the fall in futures, so the fall has not been as strong (figure 1).

Throughout October, we have been warning readers that basis levels were unlikely to be maintained at levels seen at the start of the month. In the past week, basis levels have continued to fall (figure 2). This in combination with the low futures levels, reduces the overall price available to growers. The analysis article yesterday “Swap update” delves into more detail on using swaps to gain full advantage of the market.

The Russian crop keeps going from strength to strength, with estimates >82mmt. As we all know Russian/Ukraine are now our biggest competitors on the export market, and it is of paramount important to keep an eye on them. In figure 3, we can see that in A$ terms Russian wheat has increased strongly in the past month. This is helpful for Australian growers, as it makes our wheat compete more effectively.

Next week

At a local level, Australia is weeks away from the start of harvest and that is where our focus should lie.

It is important to ensure that you have a plan in place, for marketing your grain. At present grower selling is very low, and this could lead to a degree of harvest pressure on pricing.

Restockers digging deep again

Posted on by Caitlin Dearden

Analysis of the underlying saleyard data that is used to create the Eastern Young Cattle Indicator (EYCI) shows that optimism of restockers has been increasing during October as they appear more prepared to pay a premium to secure young cattle. This piece delves a bit deeper into the figures to see if the renewed restocker interest is part of the normal seasonal cycle or if there is something more behind it.

Figure 1 shows the historic movement in the restocker spread to the EYCI, with a lift in the premium percentage spread over October clearly evident. This effectively means that restocker buyers at the saleyard have been prepared to pay more to secure young cattle as the month progressed, indicative of increased buying confidence.

Indeed, the restocker spread has now broken above the 70% range banding for the first time since 2016 and currently sits at levels that have been characteristic of herd rebuild phases in the recent past, such as during 2011 and the 2005 seasons – as identified by the blue circles.

A further breakdown of the restocker figures into the southern and northern regions, with Dubbo as the halfway point, shows a distinct difference in the buying behaviour of northern and southern restockers, even after accounting for the normal seasonal differences in restocker spread activity.

Figure 2 outlines the restocker spread to the EYCI, filtered for southern buyers. Although there has been an increase in the spread from a discount to a premium over October it is still moving broadly in line with the normal seasonal pattern, as identified by the long-term average trend line and currently sits at a 1.4% premium to the EYCI.

In contrast, a look at the northern restocker spread activity over the season shows a significant improvement in the restocker spread during the September/October period. While it is not uncommon to see the northern restocker premium spread to the EYCI widen in the second half of the season the magnitude of the widening, particularly during October has been impressive when compared to the 2016 and longer term average seasonal pattern – figure 3.

Indeed, at a current premium spread of 8.6% the northern restocker spread is one and a half times the seasonal average and has broken above the usual range that is common for this time in the year, as identified by the 70% banding.

See related articles – July Restocker analysis & September Restocker analysis

What does this mean?

The July restocker analysis (see link above) suggested, the dry spell in Winter would see the restocker premium spread to the EYCI fall back to zero, in both the north and south – which occurred during September.

An updated forecast from the Bureau of Meteorology (BOM) pointing to the chance of a La Nina developing into late 2017/early 2018 has prompted the activation of a La Nina watch on the BOM website. The last La Nina event was recorded during the 2010/11 season which coincided with a herd rebuild phase that saw herd numbers rise 6.6% in 2011.

Clearly, the recent northern rains (with areas around Bundaberg reportedly getting up to seven times their monthly average rainfall during October) and the increased chance of a La Nina event on the cards have given northern restockers the confidence boost needed to get them back into the young cattle market in a big way. Let’s see how long it can last.

A solid week despite high SA throughput

Posted on by Caitlin Dearden

The Eastern States Trade Lamb Indicator (ESTLI) took a bit of a breather this week, staging a slight price decline as South Australian lamb throughput is starting to act as a bit of a headwind. The ESTLI off 6¢ on the week to close at 624¢/kg cwt.

Trade lambs were the only Eastern states saleyard category to post a decline this week, and compared to this time last year the ESTLI is still around 10% higher and at pretty comfortable levels for producers with lambs to offload.

Table 1 highlights the performance of the Eastern States sheep and lamb categories both for week on week and year on year figures and there isn’t much red to be seen. Mutton and Restocker lambs the top performers up 5.6% and 4.4%, to 696¢ and 441¢ – respectively.

Figure 1 highlights the recent SA lamb throughput with numbers at the saleyard well above the longer-term average for this time of year and reaching toward last season’s peak with 37,598 head reported, an 80% increase on the previous week’s yarding figures.

In contrast, the Victorian seasonal lamb flush has begun but is yet to get into full swing – figure 2. Lamb throughput is close to the levels set this time last season at just under 69,000 head, which is about 25% above the longer-term average but is yet to record the 100,000 plus numbers we will see once the flush gets underway in earnest.

The week ahead

With lamb prices sitting at levels comfortably above this time last season and the prospect of a surge in Victorian lamb numbers just around the corner it’s probably time we will start to see the ESTLI come under a bit of pressure in the coming weeks.

Next week’s rainfall forecast shows some reasonable falls for Victoria and Tasmania, but not a lot for the remainder of the sheep rearing zones, so that may delay some of the southern flush slightly but it is not far away.

Upside for some

Posted on by Caitlin Dearden

More wet weather this week cut cattle yardings in Queensland, and encouraged restockers to return to the market in NSW.  At a time of year when prices generally fall, or are steady, we saw a further appreciation in the Eastern Young Cattle Indicator (EYCI), but not in all categories.

In general, the cattle market lifted this week. The EYCI continued its rally, gaining a further 13¢ to hit 565.75¢/kg cwt.  The EYCI has now rallied for a month, and gained 12%, now sitting at a 12 week high (figure 1).  The EYCI seems to be heading on a similar trajectory to 2015, although the previous prices trends have been starkly different.

EYCI yardings were a touch weaker in the week ending Wednesday, but are not really abnormal.The 14,698 head yarded this week were down 5% on last week, and 29% on the same week in 2016, and 7% below the five year average (figure 2).

The main movers in price terms which drove the EYCI, were trade steers in Queensland, which gained 18.5% to move back to 559¢/kg cwt. This is just 3¢ shy of trade steers in Victoria and NSW.

Restocker steers in NSW also made a move, likely on a combination of tighter supply and stronger demand.  NSW Restockers paid 11.5% more for the most expensive cattle in the country (according to reported indicators) at 349¢/kg cwt. To be fair Victorian restockers paid the same money.

Over in the west the WYCI continues to hover in the 520-530¢ range. While this is obviously discounted to its eastern counterpart, it’s still a great price for what is generally a strong supply period in WA.

The week ahead

After three wet weeks the rain is expect to abate in NSW and Queensland next week.  This might pick up supply a little as cattle will be able to move, but there might be restockers waiting for them. It’s hard to see prices falling over the coming weeks, but upside is reliant on restocker activity as a lot of the fat for processors and feeders has disappeared with the month long price rally.

A Quick Billion Dollars

Posted on by Caitlin Dearden

We’ve ticked over the billion-dollar milestone for total value of wool sold this year which is something of an achievement. At this point in the season last year the value was 26% lower than it is today despite the cumulative bales sold being just 10% lower.  The wool market hasn’t reached this mark by week 17 since 2002.

The Eastern Market Indicator (EMI) rose 10¢ on the week to 1,578¢ in Australian dollar terms. However, the falling Australian dollar has put some real pressure on the EMI in US dollars. It saw a drop of 13¢ to the week back to 1,218¢. This is a win-win situation, with Australian sellers receiving a higher local price and overseas buyers getting more “wool for their buck”. The Western Market Indicator also supported by the shifting currency by rising 20¢.

Sales were fairly strong across the board, with the real achievers again being in the fine wool category. Wool 19 MPG and finer gained between 35 and 45¢ in the Northern market while similar rises were only received for superfine wool (16.5 MPG) in the Southern Market. Premiums for fine fibres over medium fibres this season have been significant- Figure 1. Prices across the rest of the Merino market were generally positive, rising on average 10 to 20¢.

Crossbred fibres took another hit this week as all buyer interest seems to be mounting on finer fibres. Price reductions were mostly between 20 and 40¢ while the better prepared lines managed to attract a little support.

The skirtings market had another solid week seeing gains of 20 to 50¢. Buyers were particularly happy to pay more for low vegetable matter. Cardings indicators rose 30¢ on average across all three markets.

The response from growers this week was to pass in 3.2% of the offered wool, resulting in 43,473 bales sold. This is a slight retraction on last week but still considerably higher than last year.

The week ahead

47,266 bales are rostered for sale next week across the three selling centres (Figure 2). Melbourne is set for an extra day of sale on Tuesday, while Sydney and Fremantle are operating Wednesday and Thursday as usual.