Tag: Grain

Weekly Wool Forwards for week ending 12th April 2019

Last week, only two wool trades were agreed, and the relative quiet continued this week.  Only four trades were dealt, with two of these being for crossbred fibres. Interest in crossbreds is higher than average, and that’s likely to be because of the good historic prices they are experiencing.

In the medium wool category, two trades were agreed for 21 Micron wool, both for June at 2250¢.

In the coarse wool category, two trades were dealt for 28 Micron, both for September at 1100¢.

It does feel that the forwards market has been quiet. The Australian dollar was slightly stronger this week compared to last week and has been trending slightly higher over the last month, which might give us some clues.

The forward curve can indicate future behaviour. Because we’ve seen prices on the auction market falling, the forwards market curve has gone relatively flat, which leads us to believe we might be seeing a base and it indicates that buyers are fairly comfortable at these levels. It’s hard to know for how long, with many factors influencing auction prices, but the wool market has been historically stable and it’s hard to see that it’ll change overnight.

Wool market ticks along OK

The wool market seems to be sitting in a comfortable space right now, and despite the drought influence on quality there are minimal price movements week on week.

There is a negative impact on the market from the continued supply of low yielding wool coming to the market continues, however the current value of the offering is no doubt being well received by wool producers.

Again, AWEX report that the there is insufficient supply of better style high yielding wool to satisfy buyer demand, these types are keenly sought by exporters trying to satisfy demand. They also note that while the market has had a 6-week negative run, it has only retraced 4.5%.

The Eastern Market Indicator (EMI) eased slightly giving up 4 cents for the week to settle at 1,943 cents. The Au$ was slightly stronger at US $0.71, with the EMI in US$ terms gaining 1 cent to end the week at 1,383 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) declined by 4 cents to finish at 2,095 cents.

37,454 bales were offered for sale this week, almost identical to last week with the trade clearing 32,669. This is just 310 fewer bales than last week, however the pass-in rate was again significant at 12.8%.

In the auction weeks since the winter recess, 1,124,734 bales have been cleared to the trade, 217,993 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,812 bales per week fewer.

For comparison, in the first selling week of April 2018, 51,066 bales were sold.

The dollar value for the week was $66.18 million for a combined value of $2.621 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,025 per bale across all types for the week.

Crossbreds continued to defy the easier trend with an increase of 10 to 30 cents across the board. This is the third week in a row of price improvement, however the Cardings sector was mixed declining by 41 cents in Sydney but posting modest gains in Melbourne & Fremantle.

The week ahead

The roster for next week has the offering again at 38,712 bales followed by 42,465 before the Easter recess.

Crop update around the world

The 2nd quarter of the year is the most important part of the year for world grain production. During this period of time, the major growth phase of the northern hemisphere crop will develop. This can lead to volatility in pricing as the Northern Hemisphere will largely determine pricing for the remainder of the year. In this weeks’ comment we will take a look at some of the forecasts for the major production areas.

Australia
The Australian crop is forecast by ABARES at 23.9mmt, however at this point of the year it is a meaningless figure. The variables required to accurately predict the crop with any degree of accuracy are inherently volatile until the post-seeding period.

Russia
In the late 80’s/ early 90’s Russia was an Insignificant participant in the grain export trade. In the early post-Soviet period, Russia would import up to 15mmt. The introduction of foreign investment and techniques has led to Russia becoming the number one exporter at >40mmt (figure 1).

Therefore, the influence of Russia on global supply cannot be underestimated. This seasons’ estimates for the crop are very positive, with the Russian agricultural ministry forecasting 75-78mmt of wheat. This would be the 2nd highest wheat crops the nation has produced. If this is realized, it will likely help maintain a ceiling on global pricing.

Europe
The European trading bloc has produced on average 138mmt of wheat since the start of the century. There have been large tracts of the European growing area which have been unseasonably dry during March. However favorable moisture profiles in the main production areas in France and Germany are likely to lead to production of 149-154mmt.

United States
The United states have experienced their worst flooding in history during March. This has resulted in the loss of a substantial quantities of stored corn and soybeans. The majority of states are showing considerably improved conditions from this time last year.

Although conditions are still close to optimal the excess moisture has the capacity to reduce the potential of the winter crop, conversely it provides great starting moisture for the spring crop.

What does it mean.

We’re heading into the seeding period within Australia and all eyes will remain on weather, and more particularly the timing of the Autumn break. As outlined above, at this time in the season all predictions of crop size must be taken with a grain of salt until the situation post seeding becomes clearer. The best you can do at the moment is keep your eyes on the skies.

Cattle rally slows with nothing on the forecast

The cattle price rally continued this week but slowed. The Eastern Young Cattle Indicator (EYCI) did break through 500¢ for the first time since very early January and it looks likely to break through last year’s levels.

With little rain about this week and none on the forecast, cattle buyers took a breath and held prices relatively steady. Figure 1 shows the EYCI was due to slow a little. The rally hit 105¢ this week and it has done it in a month. The EYCI was at 505¢/kg cwt on Thursday and right on the five year average.

This time last year, young cattle prices were heading in the other direction. This suggests that this year’s values will surpass year-earlier levels for the first time since July 2017.

Young cattle supply has remained relatively low. It’s unusual for EYCI yardings to remain below 15,000 head for more than a week at this time of year. No doubt producers are holding what cattle they have left to take advantage of some autumn grass growth.

Paddock feeder prices have rallied, but only marginally. Lot feeders never really paid much less for export feeders, so the smaller increase was to be expected. Export feeders are still commanding a 30¢ premium over the EYCI, which is within the historical range, but at the stronger end.

In the West, cattle prices are less exciting. The WYCI was steady this week at 533¢/kg cwt, still stronger than its eastern counterpart, but 45¢ below this time last year.

Next week:

Another 8 days of no rain might start to give the market the jitters. We will move into mid-April with no autumn break and if it’s still like this at the end of the month we might see young cattle values start to head lower again.

It’s difficult to see where slaughter cattle are going to come from through late autumn and winter, so those prices will at least hold their strength.

Heavy weaners in demand across the Strait

We are a month into the annual weaner sales in Tasmania and while weaner prices are on par with last season there are some interesting developments when comparing price spreads to the mainland – particularly for the heavier weaners.

Tasmanian weaner prices have eased slightly, down 4% compared to last season, with the average price of 295¢/kg lwt achieved during March for heifers and steers at the Powranna sales. Weaner steers have averaged 330¢, while weaner heifers have earned 260¢.

Figure 1 demonstrates the price trend for Tasmanian weaners, according to weight classifications, with the heavier stock holding their value the best. Prices for weaners weighing above 330kg liveweight are 3.7% below levels achieved in 2018 and weaners in the weight range between 280-330 kg are off 3.6%, not too bad considering the southern restocker Eastern Young Cattle Indicator (EYCI) is 13.4% lower than in 2018.

Analysis of the spread pattern for different weaner weight classification to the southern restocker EYCI highlights that the spread for heavier weaners has been steadily improving since 2015 – Figure 2. This is particularly true for weaner steers weighing above 280 kg liveweight with premium spreads being earned during 2019 that are three to five times greater than the average spread earned over the last ten years.

Indeed, weaners weighing more than 330kg lwt have achieved an average spread premium of 67¢ above the southern restocker EYCI during the March sales, compared to an average of 13¢ premium over the last ten years.

For a full copy of the Tasmanian Weaner Sales Report for March 2019 contact Roberts Livestock

What does it mean?

The surge in the heavy weaner spread premiums can be demonstrated by the percentage spread pattern to the southern restocker EYCI for the last fifteen years – Figure 3. For much of the period the percentage spread premium was confined to a 0-10% range. However, in 2018 the spread lifted to a 17% premium and during March of 2019 has jumped to 30%.

Anecdotal reports from the Powranna sales suggest that the robust demand for heavier weaners was fueled by competition amongst feedlot backgrounder and finisher buyers. Given the expectation of tight supplies of quality finished cattle as we head toward winter the solid demand for heavier weaners now isn’t surprising.

Key points:

  • Tasmanian weaners sales are averaging 295¢ kg lwt during March, down 4% from the 2018 average price
  • Weaner steers have achieved an average price of 330¢, while weaner heifers are earning an average of 260¢
  • Weaners above 280kg liveweight have been achieving premium price spreads to mainland EYCI type cattle that are three to five times higher than the ten-year average spread

Trepidation as we head into seeding.

After such a terrible year there is a sense of trepidation as we move into the Australian seeding period. In this week’s grain comment we take a look into ASX pricing and the ramping up of volatility in pricing.

The Chicago futures market has traded in quite a narrow range over the past fortnight, between a high of A$258 and 251. The floods throughout the USA have seemingly been the worst on record, however, there hasn’t been much of a reaction in the markets. The market could see surprises over the next couple of weeks as damage is assessed.

There was substantial rainfall across much of Queensland, however it wasn’t quite as beneficial for NSW as expected. The local futures market (ASX) fell late last week, and into the start of this week. The lower than expected rainfall has resulted in the market rallying A$8 (figure 1). There has also been some decent volume on 2021. At present producers on the east coast can use ASX futures to lock in prices above $300 for the next two years.


In January I discussed volatility in the wheat market. At that point in time volatility well below the bottom of the expected range for the time of year. This lack of volatility continued through February, however March has seen this spike (figure 2).

As we get close to the northern hemisphere harvest we will likely see volatility increase. Typically, July is the most volatile time for the wheat market.

If you think Australian politics is a mess, look at the UK. Today was expected to be the day that the UK left the European Union. However there has been a kerfuffle over the process. This has caused a huge amount of uncertainty with no-one knowing when or if the UK will leave and how it will be done. The Prime Minister has even announced that she will quit, provided that the parliament votes for her deal with the EU.

What does it mean/next week?:

As we get close to the new marketing season, the market will be examining planting and export figures.

Russia has been the most important global exporter in recent years, and the ag ministry is calling for another large crop. However the IGC see global stocks declining at the end of this season as consumption rises.

Hat eating ceremony postponed.

A fortnight ago the Eastern Young Cattle Indicator (EYCI) was trading under 400¢ and I made the bold statement that I’d eat my hat if it kept going lower. Thankfully, some significant rain to Queensland in the last week has seen cattle prices rebound. Although, according to the Bureau of Meteorology (BOM) we are not out of the woods yet.

Further to my hat eating comment, Mecardo released analysis in late February suggesting that the EYCI would find some significant support near the 400-420¢ level based on some key technical indicators. Granted, we dipped briefly to 385¢. However, the strength of the rebound in price from the low 400s has been resounding. Yesterday the EYCI closed at 494¢/kg cwt.

Rainfall of 100-200mm has been noted for significant areas of south western Queensland, thanks to the remnant activity of tropical cyclone Trevor helping to boost optimism amongst cattle producers. The updated three-month rainfall outlook released yesterday paints a pretty good picture with almost all the country expected to see a 50/50 chance of an average Autumn break, in terms of rainfall – Figure 1.

There was a caveat included in the forecast and a warning. The BOM noted that the El Nino Southern Oscillation (ENSO) indicator had moved from watch to alert, which means the prospect of an El Nino forming in 2019 is now a 70% chance which is three times the normal likelihood. The BOM warned a move to El Nino could have significant negative impact on the current rainfall outlook.

Nevertheless, cattle prices across the board mirrored the recovery in the EYCI with all NLRS reported categories along the east coast posting gains between 2-13% on the week (Figure 2). In the West young cattle prices softened, albeit slightly, with the WYCI down 3¢ on the week. Offshore, the 90CL frozen cow indicator remains firm with a gain of 2.4¢ to close at 655.5¢/kg CIF – Figure 3.

Next week

The eastern halves of Queensland, NSW and Victoria are set to receive between 10-50mm in the coming week which should continue to provide broad support for cattle prices. Although, given the strength of the rally in the EYCI in the last week I wouldn’t be surprised to see the magnitude of the price increase ease and settle into a consolidation phase for the next few weeks.

Buyers selective

The recent pattern of buyers chasing after the small offering of quality wool, while at the same time finding an over supply of drought effected types continued.

While this pattern of supply is broadly following a well-worn seasonal path, the situation is at the current elevated levels because of the drought. It will take some time for this to flow through with wool shorn over the next 6 months at least also drought effected.

Auction volumes to the end of March make interesting reading, especially when broken down by category. AWEX figures show that comparing year on year the overall volume of wool offered for auction is 11.5% lower. However, as an example, the 16 MPG is 20.4% higher, with the 19 MPG 5.6% lower. However, as a result of the dry conditions, the big mover is the medium microns. The 21 MPG is down a massive 47.8% compared to last year; this helps understand some of the reasons for the current market dynamic.

To re-enforce the drought effect, AWEX noted that 30% of Merino fleece this week was yielding less than 60%.

The Eastern Market Indicator (EMI) again fell 16 cents to 1,947 cents. The Au$ fell back below the US $0.71 mark, with the EMI in US$ terms also losing 21 cents to end the week at 1,382 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) declined by 5 cents to finish at 2,099 cents.

37,405 bales were offered for sale this week, 5,724 less than last week with the trade clearing 32,979. This is 5,722 fewer bales than last week, with the pass-in rate remaining in double digit figures at 11.8%.

In the auction weeks since the winter recess, 1,092,065 bales have been cleared to the trade, 199,596 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,438 bales per week fewer.

The dollar value for the week was $67.22 million for a combined value of $2.555 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,038 per bale across all types.

Crossbreds again were the only category to see improvements this week, lifting 10 to 20 cents, however the Cardings sector continued to decline losing 30 to 40 cents.

The week ahead

The roster for next week predicts an offering of 38,212 bales followed by 35,945 and 41,055 in the weeks proceeding.

Red Alert for the season?

The Bureau of Meteorology (BOM) has put the country on alert. Last week they updated the El Niño tracker to ‘alert’ status. Their view is that there is a 70% chance of an El Niño forming in Autumn. We thought this was an opportune time to look at both El Niño & La Niña, and what it means for the nation’s wheat production.

According to the BOM, ‘El Niño’s often lead to drier conditions over large parts of Australia, while La Niña’s tend to enhance rainfall over much of the continent’. However, it must be noted that not every drought is associated with El Niño nor every wet year with La Niña.

In this analysis we examine the El Niño and La Niña events which have been considered moderate to strong from 1960 to determine what impact these events have on grain production. The analysis will examine the year on year change in wheat production.

In figure 1, we see the year-on-year impact of El Niño split into east coast and west coast. In the period 1960-2015, 7 of 11 El Niño years have recorded a reduction in wheat production, with 6 of these years recording a > 20% reduction. In Western Australia the impact of El Niño has been less negative, with 6 out 11 event years recording an increase. However, only two of these years record > 20% increase. In addition, during the years of production decline, 3 of these years recorded large production falls of > 20%.

The year-on-year impact of La Niña is displayed on both the east and west coasts as highlighted in figure 2. In the period 1960-2015, there have been 8 La Niña events. The east coast during these La Niña events experienced 6 years where production has been higher, with 4 being >15% and 2 events where production reduced by >20%. The impact of La Niña in WA has caused 4 out of 8 years to have a production contraction, with 3 of those years having a >20% decline. The La Niña years with an increase in production in WA have resulted in smaller increases than the east coast with the exception of 1988.

In both figure 1 & 2, it is evident that since the mid 1980’s in Australia El Niño events have overall been negative for crop production and La Niña events have been positive, with the exception of 2010 in WA.

In figure 3, the year-on-year impact of La Niña & El Niño is detailed at a global level. During an El Niño year we can determine that production was reduced in 6 years out of 11, and increased in 5 years with no changes of more than 10% on a global level. During La Niña years, global production has increased in 3 out of 8 years, whilst production has decreased in 5 years.

Key points:

  • El Niño events tend to have a larger negative impact on east coast Australian production, with 6 out of 11 moderate to strong El Niño years recording >20% decrease.
  • La Niña events tend to result in increased production on the east coast, especially in events since the mid 1970’s which may be due to more efficient water use.
  • La Niña years in Western Australia tend to be more subdued with lower production gains, and a higher chance of reduced production.

What does this mean?
The reality is that El Niño is a factor which can influence Australian weather patterns, however it’s not necessarily an indicator of whether a drought will form.

A good example is the past season which has neither El Niño or La Niña and the country has experienced a horrific drought.

The BOM haven’t yet announced El Niño as being in effect, so it’s all speculation at the moment. There is still a long way to go between now and harvest, and with such a volatile climate anything can and will happen.

Weekly Wool Forwards for week ending 29th March 2019

Last week, we had no wool trades but saw a couple of rare cotton forward agreements. This week, wool trades came back, with six agreements, most of these in the medium wool category. Looking back at forwards for this month, there was just 18 agreed trades, the lowest number since December and the lowest March total since 2016.

In the fine wool category, one trade was dealt for 19 Micron in April for 2,290¢. In the medium wool category, five trades were dealt for 21 Micron with two agreed at 2,250¢ in June, and three at 2,095¢ in October.

Looking at the Aussie Dollar trend since the start of March, we see a single small downward movement at the start of the month followed by a relatively stable curve, with a couple of forays above 71¢. In fact, today we’re nearly exactly at the same price as at the start of the month. Over the month we’ve seen a gradual overall cooling of physical auction prices that can be traced back to lower quality wools presenting more frequently.