Tag: Sheep

Trimming a bit more off sheep and lamb supply

Posted on by Caitlin Dearden

Key Points

  • MLA’s sheep industry projections have wiped more supply from the coming years.
  • Lamb slaughter and the flock is expected to recover in 2021, but sheep slaughter will take longer.
  • Supply driven price rises for lamb are likely to ease, but sheep supply will support the complex.

Meat & Livestock Australia’s (MLA) industry projections were released this week, and there was no improvement to supply outlooks. In fact, slaughter rates and flock numbers that have come to light so far this year, will see supply stripped back further for the next couple of years.

The National Sheep flock was already forecast to hit a low not seen in over 100 years. With the Australian Bureau of Statistic (ABS) official number for June 30 2019 coming in at 259,000 head, or 0.4% lower than earlier estimates, MLA stripped another 200,000 head out of the 2020 forecast it made in February.

MLA now expect the flock to hit 63.5 million head on June 30, down 3.5% on 2019.  Last year was the lowest flock in over 100 years, but 2020 is going to better it, so to speak.

MLA’s flock estimates were decreased by similar amounts out to the 2023 flock. By 2023 the flock is expected to have recovered back to 2017-18 levels. We can see in figure 1 that the flock can rebound sharply. From 2016 to 2017 the flock gained 4.6 million head or nearly 7%.  The forecasts are putting flock growth at 3 to 5%.

The lower flock and the very tight lamb slaughter rates for the year to date, saw slaughter estimates also adjusted down for the June projections. Figure 2 shows lamb slaughter is still set for an 8 year low in 2020, but it is 2% lower than the previous forecast.

After close to a 5% fall in 2020, lamb slaughter is expected to bounce back to 2019 levels in 2021 and reach record levels in 2023 of 23 million head.

With the rain and subsequent lower sheep supply for the year to date, it is sheep slaughter forecasts which have taken the biggest hit. Sheep slaughter for 2020 and 2021 was decreased by 10%, both to eight year lows of 6.5 million head. An extra million head is expected to go over the hooks in 2022 and 2023, but it is hard to see sheep slaughter getting back to the highs of 2018 and 2019.

What does this mean?

Much of the decrease in lamb supply this year has already been accounted for, and MLA expects strong growth in 2021.  This suggests we might be seeing the last of lower year on year lamb slaughter, and as such, the growth in prices.

On the other side of the coin, we have sheep slaughter which is expected to be very low for two years, and won’t recover to the levels of recent years for at least four years.  This will no doubt support sheep prices in general, as will the flock rebuild.

And we have prices!

Posted on by Caitlin Dearden

While MLA’s COVID indicators have been a good substitute for our normal price data over the last few months, we’re happy to see the full suite of price indicators again. Now on the other side of the worst of the uncertainty (we hope), the before and after confirming prices have gained ground.

The last time we saw an official Eastern States Trade Lamb Indicator (ESTLI) was on the 25th of March where it was sitting at 873 ¢/kg cwt. Tracking the CV indicators over the last two months, and looking at Mecardo’s theoretical ESTLI in Matt Dalgleish’s recent article (view here) we know tight supply has provided price support during demand uncertainty. Fast forward over two months and Figure 1 shows the ESTLI closing this week at 934 ¢/kg cwt, 7% higher than last reported. This is just 35 cents shy of where the theoretical model pinned the ESTLI the week prior.

Mutton has also come back with a bang. The National Mutton Indicator ended the week at 715 ¢/kg cwt, an impressive 128 ¢/kg higher than the same time last year (Figure 2).

Checking back in on the CV19 indicators for week on week comparison, the CV19 Mutton indicator rose 5% to $189/head. The restocker and processor lamb indicators didn’t perform as strongly, with both largely tracking sideways to end the week at $164/head and $222/head respectively.

Mutton prices at current levels have no doubt swayed some producers to sell. East coast sheep slaughter continued to lift last week, up 35% on the week prior. It’s now verging close to the lower end of the 70% normal range for this time of the season which is still 38% below last years levels (Figure 3). East coast lamb slaughter on the other hand has continued to hold stable with just a 3% decline on last week.

Next week:

We aren’t too far from the record mutton prices recorded in mid March and we’re likely to get closer still. Looking at the rainfall forecast for the next few days is promising for those watching grass grow. Strong prices will continue to tempt sheep to slaughter, but we can’t see any big lift in volumes any time soon.

Supply low, AUD strong & market positive

Posted on by Caitlin Dearden

The market opened with a positive result on Tuesday as Sydney played catch-up to the strong finish of last weeks market, while Melbourne was quoted as ‘firm’.

This trend continued to the close on Wednesday with solid competition and a good clearance rate despite the headwind of a surging AUD.

The Eastern Market Indicator (EMI) lifted another 15¢ or 1% this week to close at 1,183¢. The Australian dollar was quite strong up 3 cents to US$0.694, which elevated the EMI in USD terms by 44¢ to 821¢. This caused a 5.3% lift in US$ terms. With Fremantle not selling, the Western Market Indicator remained at 1,239¢.

Turnover this week tipped below $20 mill for the first time in memory to $19.62 million as a result of the smaller offering. This moved the average bale value to $1,368 per bale, a lift of $80 per bale, taking the season to date value to $1,897 million.

With the solid market, the pass-in rate was lower at 6.8%, 1.1% below last weeks level. This resulted in 14,337 bales clearing, 3,000 fewer than last week.

AWTA volumes fell heavily in May (down 28.5% in farm bales). The season to May, volumes are down a milder 8.7%.

This week on Mecardo, Andrew Woods looked at the relationship of AWTA test volumes compared to Auction sales in order to get a view on the build-up of grower stocks (view here).

Auction sales for the season are well below the standard 85% of AWTA volumes, tracking at 72% of AWTA volumes in 2019-2020. This implies that farmer stocks have increased by around 13% of annual production in 2019-2020. Given the fall in demand, this outcome is not surprising.

While Sydney played catchup on last weeks closing sale day, the market was fully firm, an impressive result given the rampaging AUD. Less than 2,000 bales of Crossbred wool came forward and met solid demand, with 26 – 28 MPG indicators posting 12 – 41¢ gains.

Cardings joined in the spirit and posted on average a 24¢ lift across the two centres.

The week ahead

Next week’s national offering increases to 24,140 bales with Fremantle joining in with a 4,800 bale offering. Sydney & Melbourne will sell on Wednesday & Thursday while Fremantle will offer on Wednesday only.

The increased demand this week despite a higher Au$ should support the market next week.

34 micron prices low against polyester staple fibres

Posted on by Caitlin Dearden

Key points:

  • 34 micron prices are trading at 25 year lows in Australian dollar terms.
  • In US dollar terms, 34 micron prices are trading near the low levels reached in the last 1990s and early 2009.
  • In US dollar terms the 34 micron price has returned to low levels of basis to polyester staple fibre prices, similar to that seen in the late 1990s and the middle of the last decade.

Broad crossbred prices continue to plumb new lows, a mere five years after they had spent five years (2010 to 2015) trading at stratospheric levels. This article takes a look at an Australian 34 micron prices series and its relationship to polyester staple fibre prices.

In Figure 1 a 34 micron price series from Australian auctions is shown running from mid-1995 onwards, along with a polyester staple fibre (PSF) price series. In Australian dollar terms, the 34 micron price series is at 25 year lows, close to 200 cents which is well below previous periods of low prices such as the late 1990s and the middle of the last decade. The PSF price series bubbles along at appreciably low levels.

Figure 2 shows the same series as Figure 1, but in US dollar terms as the supply chain would generally view them. The high prices from 2002 in Figure 1 disappear (a function of exchange rates), as do a lot of the boom price levels of 2015, again a function of exchange rates rather than demand. The current low price for 34 micron also changes, as in US dollar terms it is on par with the lows of the late 1990s when apparel fibre prices were generally depressed for an extended period (fine Merino wool was one notable exception at the time).

Note that the 34 micron and PSF price series follow similar trends and cycles, except for 2012-2015 when 34 microns buck the trend and trade at high levels. During that period most apparel fibre prices trended lower.

In Figure 3 the relationship between the 34 micron and PSF prices series is shown in US cents per kg (left hand axis) and as a simple price ratio (right hand axis). In terms of the price ratio, the low point of the past 25 years has been around 1.5-1.6. This is the ratio the 34 micron has fallen to, well down from the ratio of 3.5-4 reached in 2015-2016. In terms of the premium in US cents per kg terms, 50-70 cents has been the low reached in the late 1990s and again briefly in early 2009. The premium has shrunk to the low range again.

Energy prices have fallen this year, which will put some downward pressure on PSF prices. The PSF price is approaching the low levels reached in the depressed late 1990s, so the scope for further downward movement in the PSF is hopefully limited. Stabilisation in PSF prices looks to be required to help the 34 micron price steady.

What does this mean?

In proportional terms, farmers have been building stocks of broad crossbred wool on par with other micron categories this season. While that has not been a successful strategy, it may start to be worthwhile, given the low price level in US dollar terms, the low basis to polyester staple fibre price, and the (hopefully) limited downside for polyester staple fibre prices. Time will be the key to a recovery and that will require two components which are, firstly a pickup in economic terms and secondly a pickup in demand for broad crossbred wool in relation to other fibre prices.

Market has a positive bounce

Posted on by Caitlin Dearden

While last week the MPG indicators across the board were showing negative, this week it was a “sea of green”. The market performed strongly on a small offering. From the open in Sydney & Melbourne, through to the final sales in Fremantle on Wednesday, it was obvious that buyer sentiment had improved.

The Eastern Market Indicator (EMI) lifted 15¢ or just over 1% this week to close at 1,170¢. The Australian dollar was also up almost a full cent to US$0.664, which elevated the EMI in USD terms by 21¢ to 777¢. The Western Market Indicator also posted a good gain, up by 25¢, fully regaining last weeks fall to close at 1,239¢.

Turnover this week was lower at $22.24 million as a result of the smaller offering. This moved the average bale value to $1,282 per bale, taking the season to date value to $1,878 million.

The pass-in rate was lower at 7.9%, 4.7% below last weeks level after growers withdrew 11.2% of the offered bales pre-sale. This resulted in 17,343 bales clearing, just over 1,000 fewer than last week.

Apparel fibre prices peaked in mid-2018 and then began a cyclical downturn. By late 2019 the average Merino micron price was down by 29-30% in both AUD and USD terms, a modest down cycle over 18 months. Then came the pandemic.

As Andrew Woods wrote on Mecardo, “Since January the price of Merino wool has fallen by 27% in US dollar terms and 23% in Australian dollar terms (monthly averages). The pandemic downturn is a separate and additional downturn to the already existing down cycle from 2018.”

The gains this week in the market were “across the board” with all MPG’s rising, however, notable rises were in the 18 to 21 MPG range with 20 to 30 cent gains. Fremantle followed the eastern states lead on Tuesday with 29 – 38 cent gains across its micron range, as well as a 37-cent lift in the Cardings.

A small offering of Crossbred wool came forward and met solid competition, with the strongest rises coming in the 26.0 to 28.0 MPG range. Cardings followed the combing wool lead, with 20, 16 & 37 rises in Sydney, Melbourne & Fremantle respectively.

The week ahead

Next week’s national offering is reduced again to 17,136 bales with only Sydney & Melbourne selling on Tuesday & Wednesday.

Better buyer sentiment and a reduced offering should provide support to the market.

Sheep and lambs “stay home”

Posted on by Caitlin Dearden

One could be forgiven for thinking that sheep and lambs were on paddock lockdown last week based on the saleyard throughput figures. Weekly east coast lamb yardings were already tight for this time in the season, but last week reached a low that pre-dates Mecardo’s records.

East coast lamb yardings were 79% below the five year average trend at just 39,798 head (Figure 1). We’ve been looking at the 2011 season as a reference point of how supply played out during a rebuild. However, last weeks throughput suggests that we might be reaching into new territory. The low in 2011 still saw 70,000 lambs pass through east coast yards and this was during a week of Easter disruption.

The story was much the same for sheep yardings. East coast sheep throughput fell 66% from the week prior and was 83% below the five year average trend (Figure 2). Zoning in on the various states and it was clear who drove the dramatic fall in yardings. New South Wales combined sheep and lamb yardings were 89% below the five year average, while Victoria wasn’t far behind at 69% below the average trend for this time of the season. Recent rain in these regions appears to be adding more optimism to the outlook and incentivizing producers to hold onto stock.

Sheep and lamb slaughter volumes saw little change from the week prior. Weekly east coast sheep slaughter remains at 53% below the same period last year (Figure 3). For the calendar year 2020 to April, sheep slaughter was down 25%, so the trend is increasing which is positive for the Australian flock.

All CV indicators responded to the lower supply with gains. The Mutton CV19 indicator lifted 5.3% on the week to $180/head and the Processor lamb indicator picked up an impressive 10% to $220/head. The Restocker lamb CV19 indicator also had a modest rise over the week of 3.8% to sit at $164/head on Thursday.

Next week:

The winter rainfall outlook released by the Bureau of Meteorology this week looks promising for much of the country. Tight supply is certainly here to stay. Whether last week’s slaughter and yardings figures hint at just how tight we can expect the next few months to be, is something we’ll be watching closely.

End of quarter surge in live sheep exports

Posted on by Caitlin Dearden

Key points:

  • During January and February flows to Qatar and Kuwait were 31% and 54% below trend.
  • Australian live sheep export flows to Kuwait for March increased to 58,864 head to see it 14% above the five-year average trend.
  • Jordan and the UAE also saw increased flows in March, but Qatar remained below the five-year average seasonal trend.

It has been a while since we took a look at the status of live sheep exports so we thought a summary of the first quarter of 2020 was in order. After a slow start to trade volumes the quarter finished with a bang as Kuwait, Jordan and the UAE ramped up demand.

Figure 1 highlights the 2020 trend in Australian live sheep export volumes showing a January/February period trending 54% below the five-year seasonal average.  The three top export destinations for Aussie live sheep exports are Qatar, Kuwait and Jordan. During January and February flows to Qatar and Kuwait were 31% and 54% below trend, respectively. While no Australian sheep were shipped to Jordan.

However, March saw a big turnaround. While Qatar remained 15% below the five-year trend for March, there were significant lifts for Kuwait, Jordan and the UAE. Figure 2 displays the Kuwaiti trade in Australian live sheep with flows for March increasing to 58,864 head to see it sit 14% ahead of the five-year average pattern for the month. Jordan saw 43,004 head transported in March, the second highest monthly volume in four years. Meanwhile, the UAE recorded 22,000 head shipped during March to see it 117% above the five-year average monthly trend.

Although Kuwait saw a significant jump in live sheep imported from Australia in March it wasn’t enough to unseat Qatar from the top export destination for the 2020 season. Qatar has received a total of 100,000 head for the first quarter of the year, accounting for 34% of all live sheep exports from Australia. The tally so far this season to Kuwait sits at just over 91,000 head, or 31% of the total flows (Figure 3).

What does it mean?:

After the slow start to 2020, it is pleasing to see live sheep export volumes lift above the average trend in March given there will be another moratorium in the trade over the northern hemisphere summer this season.

COVID-19 lockdown regulations have given employees in retail, tourism and hospitality sectors a taste of what it is like to have your industry ground to a halt for 3-4 months of the year. However, this is a scenario that has impacted employees across the live sheep export supply chain since 2018. Hopefully we see a few more months of above average volumes during April and May to compensate for the live sheep export lockdown when it comes in June.

Positive note short-lived

Posted on by Caitlin Dearden

The modest gains posted last week proved short-lived. The opening day in Melbourne provided some optimism but the market was unable to maintain the early price improvement to eventually end on a disappointing note.

The Eastern Market Indicator (EMI) fell by 24¢ this week to close at 1,155¢. The Australian dollar was up 0.73¢ to US$0.655, which cushioned the EMI in US$ terms, only falling by 7 cents to 756¢. The Western Market Indicator also fell, losing 23¢ to close at 1,214¢.

Turnover this week was down marginally at $23.76 million or $1,287 per bale, taking the season to date value to $1,856 million.

The pass-in rate was up marginally on last week to sit at 12.5%, after growers withdrew 8.6% of the offered bales pre-sale. This resulted in 18,455 bales clearing, just on 3,000 fewer than last week.

While the season to date weekly average sale clearance is at 27,595 bales (34,400 same period last year), the past 10 weeks has seen the clearance volume slip to an average of 22,600.

Supply is remaining constrained as growers wait and hold wool, with the expectation (hope?) that prices will recover soon. Many are supported by recent high price sales of clips over the past 2-3 years, as well as strong sheepmeat sales. However, this can only last for so long. We are now seeing growers increasingly concerned about the short and medium-term outlook for prices.

The falls were spread mainly across the Merino MPG’s with 8 to 64 cents falls reported, in fact, the EMI would have reported a larger fall if not for the fact that the Crossbred section remained unchanged.

Nationally just 2,342 bales of Crossbred designated wool was offered with 2,070 selling, with the Cardings section also clearing a modest 2,100 bales. This reduced offering pushed the Cardings indicators up in all centres, with an average 28¢ lift.

The week ahead

Next week’s national offering is a slightly smaller offering of 20,359 bales with Sydney & Melbourne selling on Tuesday, while Melbourne & Fremantle will offer on Wednesday.

To say we are in unchartered waters is an understatement, with a buying trade operating under severe limitations.

Waning supply keeping prices steady

Posted on by Caitlin Dearden

It seems to be steady as she goes for lamb and mutton prices at the moment, with declining supplies translating into solid support for prices. This week mutton and restocker indicators received a lift with the flock rebuild intensifying.

It was way back in 2011 when a full week of sheep slaughter fell below 44,000 head, and that was only for two weeks at the end of July (Figure 1).  The 2011 trend in figure 1 does give an indication of what we can export in terms of sheep slaughter this year.

Sheep slaughter in late spring more than doubles that of autumn and winter, but we all know there are fewer sheep in the flock now. If, and it’s a big IF, we get a good spring, weekly sheep slaughter could stall around 80,000 head from October to November, but it remains to be seen if restockers will still be there to bolster prices.

This week the CV-19 Mutton Indicator gained $7 to $171/head, only $15 off the peaks of March, but 80% more sheep were being killed then.  COVID-19 has impacted demand for sheep as well as lambs.

Processor lambs were basically steady, at just above $200/head, while restocker lambs were up $10 to $158/head. A $40-50 spread between store and finished lambs is a pretty reasonable margin if grass is abundant. The spread was around $55-60 in March (Figure 2) when grain was still the main feed to finish lambs.

Next Week.

Tight supply is here for the next two months at least, but we might see NSW supply coming at more of a ‘normal’ time this year. Traditionally NSW suckers have started to hit the market in earnest in July, as growers try to catch winter premiums. There might be fewer lambs this year than historically, but we expect supply to ramp up quickly in mid-winter, then again in spring which could see a return to the average price trend shown in figure 3.

Market takes a breather

Posted on by Caitlin Dearden

After four weeks of losses and continuing uncertainty as to the full impact of the COVID-19 effect on the wool supply chain, this week the market settled posting modest gains. The market has a range of differing circumstances; Merino wool with good measurements is sought after, while lower style types and crossbred wools are not receiving anywhere near the same interest.

The Eastern Market Indicator (EMI) lifted by 9¢ for this week to close at 1,179¢, while the Australian dollar was up 0.44¢ to US$0.676, which contributed to the EMI in US$ terms also rising by 11 cents to 764¢. The Western Market Indicator didn’t fare as well, falling 9¢ to close at 1,237¢.

Turnover this week was up slightly at $27.79 million or $1,303 per bale, taking the year to date value to $1,831 million.

The response to the stronger buyer interest in the market was the halving of the pass-in rate, this week down to 8.8%, resulting in 21,315 bales clearing, 654 more than last week. Contributing again was a large withdrawal prior to sale of 12% of the original offering. AWEX noted that the national offering is 10.9% lower when compared year-on-year.

The rises were across the board for Merino types, with stand-out rises of 40 cents plus for 16.5 MPG in Sydney, as well as the 18 MPG in Melbourne & Fremantle along with the 19 MPG in Melbourne. Crossbred types were generally 20 cents off the pace, while Cardings held steady in all centres.

The week ahead

Next week’s national offering is just 21,690 bales with Sydney & Fremantle only selling on one day while Melbourne will offer on Tuesday & Wednesday.

Unfortunately, the early strength this week did not continue to the close of selling, with Melbourne and Fremantle reporting an easier trend on the final day.