Tag: Sheep

ABARES forecasting record lamb prices

Posted on by Caitlin Dearden

The Australian Bureau of Agricultural and Resource Economics (ABARES) have put out their quarterly Agricultural Commodities Report, and amongst the numbers there were some interesting sheep and lamb forecasts.  This week we take a look at whether lamb prices can achieve another year on year increase, as predicted by ABARES.

We’ll get to the price forecasts, but first some interesting supply numbers.  ABARES are producing financial year forecasts, which are not directly compatible with Meat and Livestock Australia’s (MLA) calendar year forecasts, but the differences are interesting.

ABARES are expecting a solid jump in the sheep flock this financial year, with the June 30 2018 flock pegged at 73.2 million head.  A flock of just above 73 million head would be a 3.2% increase on the June 2017 numbers, on the back of a 5% increase over the last year (figure 1).

MLA are forecasting a sheep flock of just 68 million head at the end of 2017 and 71 million for the end of 2018, so ABARES are much more bullish on the flock rebuild, forecasting a flock around 2 million head higher, and at a five year high.

ABARES expect the stronger flock to translate into stronger lamb slaughter.  Figure 1 shows that 2016-17 slaughter was at a three year low, but is expected to increase 2%, to almost match the 2014-15 lamb slaughter number.

Normally a forecast of a larger flock, and higher slaughter, would be accompanied by a lower price forecast.  ABARES are actually expecting lamb prices to rise, with the average for 17/18 to post a 5.6% increase to set a new record high of 625¢/kg cwt.

Figure 2 shows how lamb slaughter and financial year average prices have been related over recent years.  Demand has been increasing regularly, but the 16-17 price rise was due to tighter supply, not increased demand.

If ABARES slaughter forecast is correct, we’ll have to see demand increase to reach an annual average of 625¢/kg cwt.  Back in 14-15, when lamb slaughter was similar to that forecast for the coming year, prices were back at 518¢/kg cwt.

Key points:

  • ABARES quarterly commodity report is forecasting a five year high flock and increased slaughter rates.
  • The report also forecast a rise in lamb prices, despite higher supply.
  • An annual average of 625¢ would see highs over 700¢, and lows at around 550¢.

What does this mean?

If lamb prices average 625¢ in 2017-18 it will be a great year for lamb growers.  Normally the Eastern States Trade Lamb Indicator (ESTLI) ranges around 75¢ around the average. The ABARES forecast would see the ESTLI reach highs of 700¢, and lows of 550¢, which is great money during the peak supply period.

Unfortunately we think the ABARES forecast might be a bit strong, and prices might average a bit lower.  We have however seen solid price resilience so far this spring in the face of increasing slaughter, so perhaps demand is stronger. Though it’s unlikely to be strong enough to counteract the higher slaughter rates forecast by ABARES.

Put it all on October rain

Posted on by Caitlin Dearden

It was only in mid-July that the Eastern Young Cattle Indicator (EYCI) broke through 600¢.  The downward spiral now has the EYCI looking down the barrel of a number with a four in the front.  There has finally been some positive news on the climatic front, however, which could and should provide some support, if it eventuates.

It has only taken ten weeks for the EYCI to lose 100¢.  Figure 1 shows what looks like an inevitable slide towards the 400s, with the EYCI this week sitting precariously at 505.5¢/kg cwt.  The slippery slope has been lubricated by relentless dry weather through most of NSW and Southern Queensland, but the Bureau of Meteorology (BOM) suggests this might be about to change.

Figure 2 shows that the BOM are putting a 50-60% chance of much of the east coast receiving better than median rainfall from October to December.  For October the chances of exceeding median rainfall is even better.  There is a better than 55% chance of much of the east coast higher rainfall zones receiving 50mm or more.

It was feeder steers which managed to defy the trend this week, gaining 8 and 7¢ in NSW and Victoria respectively, to move back to 286 and 283¢/kg lwt.  It was trade steers that drove the EYCI lower.

More positive news was a solid rally in the 90CL Frozen Cow price, it gained 14¢ to hit a two month high of 580¢/kg swt.  Figure 3 shows the EYCI now at a 3 year low in terms of its discount to the 90CL, which used to be about as low as it would go.  From 2013-2015 that changed obviously.

The week ahead

There is hope of cattle prices finding some support, given that the discount to beef export values is starting to get extreme.  If the BOM’s forecast comes to fruition you could almost guarantee a 10-20% bounce in cattle prices.  But we have to see the actual rain first.  A betting grower would be buying cattle and putting it all on October rain, as it will provide a good payoff.

 

Futures a friend, basis a buddy and currency a companion

Posted on by Caitlin Dearden

The country sits on tender hooks, as we come to the end of September. The forecasts for the crop from ABARES and USDA seem to be wholly optimistic, and will see severe downward revisions after a terrible month for much of the growing regions.

The futures market had a strong rally mid-week, rising A$8/mt (figure 1) from last week, before shedding A$4 overnight. The market is largely directionless with a lack of fresh information. This evening the USDA will release their September stocks report, which the trade awaiting this to find new grounding.

The poor September on the east coast, has seen the market rally considerably. In figure 2, the flat price of APW1 in Geelong, Port Kembla and Kwinana has been plotted. As we can see Kwinana pricing has remained somewhat flat, and Geelong/Port Kembla has risen in line with one another due to the domestic demand in the north. Albeit still with a substantial premium of $40-45p/t in Port Kembla over Geelong.

The A$, although still high compared to the last year has dropped back below 79¢, helping the local price. In the past month we have seen iron ore futures (figure 3), start to slip which put pressure on the A$. As China drops demand after an intensive import program over the past few months will we see a further slide back down to 75¢

What does this mean?

This week we have basis, futures and currency all doing their bit to help returns for farmers.

The question remains how long these premiums will remain in the market. At present basis in Port Kembla is at +A$118, however the grower is largely holding back from selling. There will still be ample supply in the coming months to meet domestic demand, and this could result in a paring back of basis premiums albeit prices locally are expected to remain strong.

 

Markets hold despite elevated supply

Posted on by Caitlin Dearden

Fairly erratic moves to the state mutton prices this week but they all evened each other out to see the National Mutton Indicator just 3¢ softer to 370¢/kg cwt. Marginal prices changes the order of the week it seems with the Eastern States Trade Lamb Indicator continuing to dance around the $6 area, posting a 5¢ gain to close at 603¢/kg cwt.

East coast sheep throughput remains above the 70% range and despite the elevated numbers the national price remained fairly steady on the week – figure 1. In stark contrast to the state saleyard mutton indicators which all had their share of action. Victorian mutton off 5.9% to 370¢, NSW mutton 8.5% lower to 376¢ and SA mutton recovering from last week’s price drop with a 27.4% gain to 358¢. In the West mutton replicating the SA experience with a 21.9% boost to 329¢, while Tasmanian mutton had a shocker with a 25.7% decline to 251¢/kg cwt.

East coast lamb throughput showing a similar story to sheep throughput with yardings remaining above the 70% range and quite elevated for this time of the year – figure 2. The high sheep throughput being held up by above average numbers at saleyards mainly centred in NSW. The lamb throughput supported by NSW and Victorian flows, the only two states with yarding figures trekking above average for this time of the season.

National lamb saleyard indicators somewhat mixed this week with Restocker lambs the star performer, boosted by a recovery in WA Restocker prices, to see it up 10% to $97 per head. Merino lambs the laggard, weighed down by Victorian Merino, to register a 3% fall to 523¢/kg cwt. National Trade and Heavy lamb managing to hold above the $6 mark, closing up 1% (604¢) and 2.2% (607¢), respectively.

The week ahead

The recent Victorian lamb yarding pattern suggest the beginning of the Spring flush is underway which is likely to start to see some price pressures for the ESTLI in the coming weeks. Although, the updated Bureau of Meteorology rainfall outlook for October (figure 3) signals a move to a much wetter NSW which will provide some welcome relief to producers there and price support on dips.

Still softer, but a promising end to the week

Posted on by Caitlin Dearden

The headline Eastern Young Cattle Indicator (EYCI) finished softer again this week, but not before staging a slight gain off the mid-week low of 513.50¢/kg cwt as saleyard throughput numbers decline in the face of the lower prices.

Figure 1 highlights the East coast yarding figures for the week, showing a 14.8% drop as throughput in Queensland, NSW and Victoria all come in lower as producers respond to softer pricing across most types of cattle in these regions. Queensland cattle prices showed fairly flat movement on the week, while NSW saw losses between the 1.5% to 3% range. Victorian prices were the heaviest, with falls between 3% to 5% on the week.

Meanwhile, East coast slaughter figures continue to trend broadly sideways, although the trend has remained above last season’s figures since early Winter – figure 2. As Angus, noted in his analysis piece this week the higher slaughter has now been weighing on prices, but this suggests price support will be evident later in the season – particularly if the MLA slaughter estimate is achieved come year end.

Figure 3 shows the price pattern for the EYCI, WYCI and 90CL. The volatility continues in the West for young cattle with a 9% drop to 536¢ while the EYCI finished the week at 515.75¢, a fall of 1.6%. In a promising sign, the 90CL beef export price back above 560¢ in six weeks with a close of 562.6¢/kg CIF noted.

The week ahead

The lift in the 90CL, lower throughput and the prospect of reasonable rain for the first time across most of NSW this week points to the chance of some support creeping into cattle prices for the near term. Particularly as the rain forecast includes some heavier falls expected in WA and the East of Victoria.

 

 

Lamb Demand defying supply

Posted on by Caitlin Dearden

The lamb market is throwing up some interesting data at the moment.  Meat and Livestock Australia’s (MLA) weekly slaughter data is telling us lamb slaughter is at a record for this time of year, yet prices remain historically strong.

Figure 1 shows that slaughter for the week ending the 15th of September has reached levels we normally see towards the end of October.  The 383,184 head slaughtered on the East Coast last week was the second highest level for the year, 10% higher than last year and the second highest on record for this week.

We can also see in figure 1 that weekly lambs slaughter this year is following the 2014 trend very closely.  While the slaughter trends for 2014 and 2017 are a close match, prices are doing a much better job of holding up this year.

In 2014 rising lamb supplies saw prices fall heavily in August, and stay there until December.  Apart from prices easing from extreme highs in June, we still haven’t really seen prices deteriorate in response to stronger supply.

This week the Eastern States Trade Lamb Indicator (ESTLI) gained 1¢ to sit at 598¢/kg cwt.  The story was different in the West where the WA Trade Lamb Indicator (WATLI) fell over 10% this week to 537¢/kg cwt, a 7 month low (figure 3).

Lamb supply in WA wasn’t particularly strong this week, but mutton was, with over 20,000 head yarded.  WA mutton values fell 65¢, over 20%, to 270¢/kg cwt.

 The week ahead

In the last few years the 400,000 head mark has been the trigger point for heavy falls in prices.  Lamb slaughter appears to be headed that way, but could just as easily track sideways for a month or so.  Does this this mean prices will also track sideways?  It’s hard to say, but demand appears to be very resilient.

Price movements in WA are a warning as to what could happen if lamb supply picks up enough to put pressure on kill space.

 

It seems it was a dead cat bounce

Posted on by Caitlin Dearden

Cattle supply continues to track higher in saleyards, and price lower.  After a bit of a bounce two weeks ago, dry weather and more numbers resumed the slide, with the EYCI this week hitting a 26 month low.

A couple of weeks ago we wrote in this column that the Eastern Young Cattle Indicator (EYCI), and cattle prices in general, might have found a floor.  Turns out we were wrong.  Figure 1 shows the EYCI falling below the spring lows of 2015, and heading towards 500¢.

While weakening demand has been playing its part in lower prices, this week supply was the culprit.  Figure 2 shows EYCI yardings hit an 18 week high, and were, in fact the strongest September yardings on record.

Rainfall and grain prices are not helping demand.  Since late August ASX East Coast Wheat Futures have gained $25, with feed values rising in sympathy.  This is obviously continuing to pressure lotfeeders.

There wasn’t a lot of joy for any cattle types this week.  All state domestic feeder steer indicators have fallen back under 300¢, except in South Australia. Heavy Steers are just above 500¢ in Victoria and SA, but look destined to break this support level as well.

Over in WA the Western Young Cattle Indicator (WYCI) has also weakened, but only eased 6¢ to 589¢/kg cwt.  Unlike the EYCI, which is sitting 26% below this time last year, the WYCI is just 4.7% lower, so things aren’t too bad for WA producers.

The week ahead

Once again there is no rain on the forecast for major cattle areas, so we don’t expect prices to rise any time soon.  There is some good news though, the longer cattle prices continue to fall, and the more cattle are liquidated, the better prices will be in the medium term if it ever rains again.

No joy for lotfeeders, or their suppliers

Posted on by Caitlin Dearden

Grainfed cattle prices have fallen in line with the rest of the market, with the consistent decline putting pressure on lotfeeder margins.  With pressure on lotfeeder margins comes lower feeder cattle prices, although, on a relative scale, they are performing ok.

The Queensland Over the Hooks 100 day Grainfed Cattle indicator continued to ease last week.  Grainfed cattle prices are now at two year lows, sitting at 513¢/kg cwt.  This is the culmination of a 10% decline since mid-June, with the indicator now sitting at a 14% discount to the same time last year.

Figure 1 shows that grainfed cattle input costs, being feeder cattle and grain prices, have also been on the decline over the last two months.  Input costs are not, however, sitting at a two year low, in fact they are not sitting far from the Grainfed cattle price, at 507¢/kg cwt.

Obviously this means lotfeeder margins are on the squeeze, as input costs approach selling costs.  Figure 2 shows that feeder steers bought last week, and contracted at the current price, will return just $20 in both northern and southern regions.  After overheads most lotfeeders are likely to be making a loss, but things are not as bad as during the high grain price days of 2009-2011.

The situation is a bit different now, compared to 2009-2011.  Back then cattle on feed numbers were low, with cattle going through feedlots at break-even to keep the doors open.  Currently there are plenty of cattle on feed, and we have seen over the past couple of years that weak margins don’t last long.

Having record numbers of cattle on feed is part of the problem, as strong numbers exiting feedlots is partly responsible for pushing the price of finished cattle down.

Interestingly input costs are basically the same in northern and southern markets, but feeder and grain prices differ.  In the north sorghum and feed cereals are priced in the $280-300/t range, while in the south feed barley is at $210-230/t.  By contrast, feeder cattle in the south are cheaper, with the Medium-fed paddock feeder at 330¢/kg lwt, while the short fed feeder, more common in the north, is costing 309¢/kg lwt.

Key points:

  • Grainfed cattle prices have been on the decline, losing 10% over the last two months.
  • Lotfeeder margins are currently low, and likely to result in fewer cattle on feed this quarter.
  • When feeder cattle supply improves in the spring, prices could fall a further 20¢/kg lwt.

What does this mean?

It’s not unusual to see tight feeder cattle supply causing low lotfeeder margins at this time of year.  The question is what happen when supply improves in September and October.  Under current grainfed cattle and grain prices, feeder prices will have to fall 20¢/kg lwt for lotfeeder margins to improve back to $100/head.  Figure 2 shows that $100/head is more in line with recent history.

Alternatively the grainfed cattle price could rise 25¢/kg cwt, which would also restore margins to $100/head at current feeder cattle values.  This is not out of the question if the number of cattle on feed has declined.

Lower throughput and lower prices equals softer demand

Posted on by Caitlin Dearden

Mild price declines across the board noted for all categories of national saleyard lamb and sheep this week despite lower numbers at the saleyard. The headline Eastern States Trade Lamb Indicator (ESTLI) down 2.6% to close at 597¢/kg cwt, while National Mutton off just 1.2% to 400¢/kg as gains in NSW and Tasmanian mutton offset falls elsewhere.

Figure 1 highlights the drop in east coast lamb throughout this week as the spike in NSW supply from last week retraces. East coast throughput off 38.5% on the week to record just under 159,000 head of lamb change hands at the saleyard, dragged lower by a 40% decline in NSW lamb throughput and a 44% decrease in Victorian numbers.

East coast sheep yardings lower too on the week, albeit marginal, with a 5.4% drop noted to see just over 59,000 head sold – figure 2. Despite the decline, east coast sheep throughput still elevated for this time of the season in comparison to the levels set in 2016 and the five-year average on the back of higher than normal NSW sheep yardings. WA sheep yardings persistently higher than normal too this week (figure 3) and having an impact on prices there with WA mutton off 13.7% to 335¢/kg cwt.

National saleyard lamb categories all softer this week with falls noted between 1-4%, Merino lamb leading the decline with a 3.8% drop to 539¢/kg cwt. National Trade and Heavy lambs the better performers, only down 1.8% (596¢) and 1.6% (601¢), respectively. The lower prices on the back of a reduced saleyard offering indicative of slightly weaker demand.

The week ahead

A rainfall forecast for the next week devoid of any significant moisture to all bar the south-western extremities of WA and the southern parts of Victoria isn’t likely to provide much support for lamb and sheep prices nationally. Pasture in Victoria is still looking pretty good thanks to some regular Spring rainfall over the last fortnight, which may support some prices in the Southern areas, but the broader picture points to further mild price declines into next week.

OYCI to EYCI spread narrows over August

Posted on by Caitlin Dearden

This weekly comment marks the first in our planned fortnightly Online Young Cattle Indicator (OYCI) updates as well as a general summary of the broader cattle market over the last week. Interestingly, the spread of the OYCI to the EYCI has narrowed over the month of August.

Figure 1 shows the seasonal OYCI pattern with the 10.2% decline over August bringing the indicator to 578.80 ¢/kg cwt as of the start of September. In contrast, the EYCI staged a decline of only 5.2% over the same period with the EYCI closing this week at 541.75¢/kg cwt. Since mid-August the spread of the weekly OYCI over the EYCI has narrowed from 14.9% to 5.6%, as at the start of September.

The EYCI staging only a mild, 2% decline on the week, as the 90CL beef export price continued to trek sideways staging a close of 557¢/kg CIF – figure 2. Young cattle in the West continuing it’s bounce around between 550-600¢ with an 8% gain this week to 595¢/kg cwt.

A 42% surge noted in NSW cattle throughput over the week (figure 3) appearing to put some pressure on Trade Steers there with a 4% drop noted to 308¢/kg lwt, with the continued dry having an impact. Feeder and Heavy Steers in NSW also slightly weaker – down 1.2% (297¢/kg lwt) and 1.3% (274¢/kg lwt), respectively. Feeder Steers in QLD and Victoria also dragging the chain a bit, down 2.4% (298¢/kg lwt) and 4.2% (289¢/kg lwt) between them.

The week ahead

The rainfall forecast for the week ahead a bit of a mirror of the last month with moisture limited to the southern regions. Cattle prices are broadly anticipated to continue to consolidate at current levels with the chance for some gains noted in the South, while the drier Northern regions may still see some further slight declines.