Tag: Sheep

Wool Week celebrations swing to the buyers

Posted on by Caitlin Dearden

It’s been nice to see the glowing Wool Week campaigns highlighting the benefits of wool to consumers, especially considering the market was far from glowing this week. Prices took another harsh cut, replicating last weeks loss which appears to be driven from uncertainty in the China-US tariff war and added supply coming out of South Africa.

The Eastern Market Indicator (EMI) fell 60 cents on the week to close at 1,833 cents, that’s on the back of last weeks 59 cent loss. The bulk of the drop was on the first day of sale, as some better style wools came forward on day two to slow the downward spiral. The Au$ dropped again to US $0.687 and as a result, the EMI in US$ terms fell by 49 cents to end the week at 1,261 US cents (Table 1).

The Western Market Indicator (WMI) declined by 58 cents to 1,937 cents this week. 48.7% of the small offering of wool was passed in as a result, which AWEX report was the lowest clearance rate in the West since 2003.

It’s times like these when it’s important to keep a check on prices from a historical perspective. There were times last year when we saw the market rally over 125 cents in a single week, and the EMI is still 25% above the five year average.

Nationally, supply was at extremely low levels with the full offering of just 24,121 bales. The total pass in rate for the week was 28.2%, leaving only 17,308 bales cleared to the trade. This is 12,093 bales fewer than the same week last year. In the auction weeks since the winter recess, 1,307,240 bales have been cleared to the trade, 252,308 fewer than the same period last year.

With the joint low volumes and reduced prices, the dollar value for the week was at a very low $32.7 million. The combined value so far this season is $2.991 billion. A simple calculation of $ value divided by bales sold gives us $1,889 per bale across all types for the week.

Crossbred wools took a large tumble in the falling market. The 28 micron fell another 110 cents. In USD terms, in the last two weeks, the 28MPG has retraced 50% of its rise from late 2018. The Merino Cardings Indicators declined 5-40 cents on the week.

High prices yet to fix supply problem

Posted on by Caitlin Dearden

Scomo’s win came as a surprise, but lamb prices streaking through 800¢ was not so much.  The timing is a bit earlier than we expected, it raises some interesting questions as to when prices might ease.

A couple of weeks ago we were talking about what happen when higher prices don’t fix supply issues.  This week the Eastern States Trade Lamb Indicator (ESTLI) gained 40¢ as supply failed to appear, at least direct to works.

Figure 1 shows lamb yardings last week managed to stay at the top of the range.  Strong saleyard values are drawing out anything that is near to ready.  Direct to works supply is no doubt struggling, as rates aren’t competing with those in the yards.  This then forces processors to battle it out at the yards of available supply.  Hence price continue to rise.

Figure 2 shows the pace of the price increase has quickened, but might be due to find a ceiling.  Last year the ESTLI spent just three weeks above 840¢, but there is a little potential for further rises.

In export markets lambs have been more expensive, and for a total of six months.  Last year lambs spent a month higher than current levels in US terms (figure 3).  In 2011 Aussie lamb was more expensive than current levels for five months.

Let’s not forget mutton.  Another week saw another record for mutton values with the East Coast indicator gaining 26¢ to hit 582¢/kg cwt.  With processors now paying over $200 per head for many sheep, it’s hard to see the flock maintaining its current level.

What does it mean/next week?:

While exporters might be able to pass on some of the higher costs of lamb, local butchers are no doubt suffering under the higher prices.  Exports now make up a larger proportion of lamb sales, so local pushback is unlikely to see prices ease.  A widespread rain will make supply even tighter, but it’s not on the forecast, so prices might get a small check at some stage.

Weekly Wool Forwards for week ending 24th May 2019

Posted on by Caitlin Dearden

A quiet week in the forwards market, with 19 micron being the only wool length dealt.

For 19 micron wool, three trades were agreed. One was dealt for June at 2,175¢. For 2020, one trade agreed for both January and February and agreed at 2,070¢ each.

Currently, the forwards prices are higher than current auction prices, which indicates that supply is becoming a concern into Winter and points to the spot auction market making a base at current levels. For this reason, we’re going to hold off on the forward curve while we wait for more data.

Woollen carnage

Posted on by Caitlin Dearden

It’s been quite some time since we’ve seen prices fall so dramatically week on week. From the outset, prices were lower and the falls continued over each day of sale. No micron, style or selling centre was spared.

The Eastern Market Indicator (EMI) fell 59 cents on the week to close at 1,893 cents. When comparing to the record high EMI last August, the current market is 11% lower. The AU$ fell by another 0.5 cents to US $0.691 and as a result, the EMI in US$ terms fell by 52 cents to end the week at 1,309 US cents (Table 1).

The Western Market Indicator (WMI) after losing 31 cents last week, dropped another 67 cents to 1,995 cents this week. AWEX noted the defiance of sellers in WA on Wednesday, where over 48% of the offering was passed in.

Supply was reasonably unchanged on last week, 352 additional bales were offered to take the full offering up to 33,154. But with a whopping 21.7% of wool passed in, a mere 25,965 bales were actually cleared to the trade. The last time we saw pass in rates this high was in October last year when the EMI was at 1,874 cents. Coming off a record EMI in August 2018, growers weren’t happy back then to sell in the falling market. While this weeks market isn’t far from those levels, it’s still a good leg above the season lows in November.

In the auction weeks since the winter recess, 1,289,932 bales have been cleared to the trade, 240,215 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,492 bales per week fewer.

The dollar value for the week was reduced again at $51.83 million for a combined value of $2.959 billion so far this season. A simple calculation of $ value divided by bales sold gives us $1,996 per bale across all types for the week.

Even crossbred wools couldn’t hold their stance in the falling market. The 26 and 28 micron plummeted down 110 – 140 cents in Melbourne. The broader 30 and 32 micron fibres weren’t as heavily discounted, dropping just 20 – 30 cents. The Cardings Indicators fell 35 to 50 cents on the week to the support level of 2015-2018 at around 1040 cents.

Supply still strong, but a tightening looms.

Posted on by Caitlin Dearden

Yarding figures remain elevated for lamb and sheep despite a recent downturn. Lamb slaughter levels are above average too, while sheep slaughter has returned to levels consistent with the five-year average seasonal trend. Perhaps it is a good omen for producers as we approach Winter that prices continue to firm in the face of strong supply.

As reported in last week’s market comment higher prices for lamb and sheep have failed to encourage more throughout at the sale yard with east coast levels for both categories posting a fall from the week prior (Figure 1).

Average weekly east coast lamb yarding levels for May have been running 20% above the five-year average and sheep yarding levels during May have been trending 35% higher than their long term seasonal average pattern indicating that demand for lamb and sheep remain robust as prices have been steadily moving higher.

Indeed, at the Ballarat sale earlier in the week heavy export lambs set a Victorian record price of $300 per head, which equates to around 785¢/kg cwt. Higher prices have been replicated across the east coast with the Eastern States Trade Lamb Indicator (ESTLI) climbing 3% to close the week at 787¢/kg cwt. East coast mutton unable to hold ground this week, but only eased 4¢ to close at 557¢/kg cwt.

What does it mean/next week?

A glance at the five-year average seasonal trend for lamb/sheep yarding and slaughter show a clear decline in volumes as we head toward Winter, so a tightening of supply is looming.

A weakening Australian dollar, down around 3.5% over the last month and trading below 70US¢, combined with robust offshore demand for Aussie lamb/sheep exports should continue to provide solid price support across ovine markets in the coming weeks.

Asian appetite for mutton holds firm

Posted on by Caitlin Dearden
  • Total mutton trade volumes for April are sitting 21% above the five-year trend.
  • Consignments to Asia are 76% above the April five-year seasonal average level, buoyed by Chinese demand which is running 96% higher than the five-year trend for the January to April period.
  • Mutton price modelling shows that continued growth in Chinese middle-class wealth could negate the impact of increased slaughter in the coming years, keeping mutton prices firm.

Department of Agriculture and Water Resources (DAWR) trade statistics for April were recently released, revealing that the above average flow of mutton product leaving Australia persists. Analysis of the key trade destinations highlights that Asian demand continues to underpin the total mutton consignments. This piece reviews the impact on mutton prices over the next few years if the Asian demand continues to grow in line with an expanding Chinese middle class.

Total mutton exports for April recorded the lowest monthly volume for the current season at 14,675 tonnes swt, a 7% decline on the March figures. Despite the lower trend, mutton exports have remained above the five-year average seasonal pattern during 2019 and the April volumes are comfortably sitting 21% above the five-year average for April (Figure 1).

The 2019 trend for total mutton exports has spent the season in the upper end of the normal range, as identified by the 70% shaded zone. In contrast, mutton exports to Asia have started 2019 incredibly strongly, remaining above the normal range and around 50% higher than the five-year average monthly trend for the January to April period.

It is not uncommon to see Asian mutton demand begin to wane as we head into April. However, this season it has remained firm with 9,640 tonnes shipped, 76% above the five-year April average pattern (Figure 2). Chinese demand for mutton has been a key driver of the elevated Asian volumes. Average monthly flows of Australian mutton to China for the January to April period were 96% above the five-year trend.

An anticipated reduction in mutton slaughter levels to 7.2 million head in 2020 could see average annual mutton prices peaking around 485¢, before an increase in mutton slaughter during the 2021 and 2022 seasons pressures annual average mutton prices back down to the 450¢ region (Figure 3). However, growing Chinese demand for mutton could negate the impact of increased slaughter into the 2021 and 2022 seasons, pushing the annual average mutton price above 500¢.

What does it mean?

Mutton price forecast modelling undertaken by Mecardo highlights a link between the growth in Chinese wealth levels and the increasing consumption of mutton. Figure 3 also demonstrates the forecast price impact upon the Australian mutton price. It assumes an increase of Chinese per capita GDP from $US9,776 in 2018 to $US13,000 by 2022 and annual trade volumes of mutton from Australia to China growing by 25% over the 2019-2022 period.

Weekly Wool Forwards for week ending 18th May 2019

Posted on by Caitlin Dearden

A solid week in the amount of forwards trades this week, especially for crossbreds which were collateral damage in this weeks’ auction market falls. Bets are on to see if prices continue to drop or level out again so it’ll be interesting to see developments in the coming weeks.

For 19 micron wool, one trade was dealt for June and agreed at 2,185¢. In 21 micron, two trades were dealt, one for June at 2,170¢ and one for August at 2,130¢.

In course fibers, four trades were dealt for 28 micron, two in June, agreeing at 1,100¢ & 1,200¢; one for January 2020 at 1,020¢ and one for August 2020 agreed at 1,000¢.

Not raining grass but restockers banking on it

Posted on by Caitlin Dearden

It has been some time since we’ve talked about rainfall driving sheep markets for three weeks in a row. Precipitation has all but completed the autumn break for key sheep areas in Victoria and South East SA. It doesn’t rain grass, but try telling restockers that this week.

In another week of stronger prices, it was restocker lambs which stood out in the ovine complex.  Figure 1 shows the NSW Restocker Lamb Indicator streaking ahead of the Eastern States Trade Lamb Indicator (ESTLI).

The NSW Restocker lamb price has gained over 100¢ in two weeks, and 250¢ in six. For a 16kg cwt lamb this equates to $16 and $40 per head, with prices this week at $136 per head. Figure 1 shows 854¢ is a new record, well above the peak seen in September last year.

Those buying restocker lambs in NSW are literally banking on grass growing. If finished on grass, lambs bought now and sold at better than 800¢ should make a good margin.

Mutton prices set another record this week on the east coast hitting 561¢/kg cwt.  In WA, sheep are not cheap, but at 400¢, they are a long way behind the east. Trade Lambs are not as far behind, the WA indicator at 703¢ (Figure 2), less than 10% behind the ESTLI.

Over the hooks prices moved higher this week in response to rising saleyard values, with NSW leading the charge. The rain in Victoria this week is likely to see southern prices catch up.

 Next week?:

When rising prices don’t draw out more numbers, prices generally keep rising. Last year the rally lasted five months and finished 55% higher than the autumn low. The next leg up might be soon and sharp. Rain in Victoria might encourage holding of lambs for winter premiums, so it might take another 40¢-50¢ higher to draw them out.

Export volumes down but value up

Posted on by Caitlin Dearden

The wool market tracked lower for Merino types this past week however crossbreds bucked the trend and continued to rally.

As for exports, Chris Wilcox, NCWSBA, reports that export volume is down 12% for the season to March, however as a reflection of the strong market export value is up by 3%.

Chinese activity was even more effected, with season to date exports down 17% and export value down by 1%. This could be viewed as a concern; our major customer taking less wool, or it could be viewed as a positive; other markets stepping in to spread the demand.

The Eastern Market Indicator (EMI) eased by 8 cents on the week to close at 1,952 cents. The US$ fell by almost 0.5 cents to US $0.697 and as a result, the EMI in US$ terms fell by 15 cents to end the week at 1,361 US cents (Table 1).

The Western Market Indicator (WMI) after gaining 28 cents last week, gave up 31 cents to 2,062 cents this week.

It was a much reduced offering of 32,801 bales that came forward this week. Growers passed in 12.9% of the offering. The break up was 9% in Sydney, 12.9% in Melbourne while Fremantle sellers passed in 18.1% of bales offered.

This meant 28,576 bales were cleared to the trade, almost 12,000 fewewr than last week. In the auction weeks since the winter recess, 1,263,967 bales have been cleared to the trade, 230,624 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,406 bales per week fewer.

The dollar value for the week was $58.3 million ($82.9 million last week) for a combined value of $2.907 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,039 per bale across all types for the week.

The only positive moves were for the Crossbreds, gaining another 10/15 cents but mainly confined to the 28 micron and finer. While Cardings in Melbourne & Sydney were largely unchanged, however Fremantle fell 25 cents.

The week ahead

The roster for the next few weeks is beginning to show the threatened decline in supply. Next week just 33,361 bales are rostered for sale with all centres selling on Wednesday and Thursday. The following weeks 30,719 & 33,360 bales are currently forecast.

Do we have a break?

Posted on by Caitlin Dearden

The rain is falling, and prices are being dragged down in sync. In this update we take a look at the impact on ASX pricing and provide a short case study of a producer utilizing the contract to increase their pricing for the 2019/20 harvest.

It’s good to hear the rain on the roof this morning, helping provide some surety to local growers in Victoria. In the past week we have seen beneficial falls in large parts of NSW and Victoria, which although will not guarantee a crop, it does give some breathing room.

In April, domestic consumers, especially buyers, were concerned about the lack of rainfall, and were buying ASX contracts in order to protect from a second year of drought. This caused a spike in prices up to A$340, the rainfall has removed that imperative.

Since just before the rain the market has fallen to A$304, and with today’s falls has a reasonable change of dropping below A$300.

In figure 1, CBOT for Dec’19 is displayed alongside ASX for Jan’20. Prices have fallen considerably for both markets since the 3rd quarter of last year. The positive outlook for the world production and political issues have pressured pricing and low levels are likely to persist.

The Food and Agriculture Organization released updated production forecasts this week, which are generally bearish. They expect world production to increase by 5% to 767mmt, causing ending stocks to rise approximately 10mmt to 27mmt.

We have been warning that the premium between CBOT and ASX would erode if rainfall arrived and the market moves back to an export focus. We proposed in September that taking some futures cover at levels >A$365 had a high likelihood of providing a financial benefit.

I discussed with a grower this week who utilized this strategy. They sold wheat at A$370, believing it to be a strong price historically, especially so far from the point of physical delivery. They have now calculated that if they closed their futures position that approximately A$20p/t will be added to their overall grain price.

This makes a good case for the benefits of utilizing derivatives as part of a wider grain price risk management strategy.

 

What does it mean/next week?:

For many consumers the ASX now provides attractive buying opportunities, however I expect many will have reached the limits of their capacity and risk policies.

The WASDE is released overnight – will it provide any surprises?