Tag: Sheep

It’s a rollicking ride for wool

Posted on by Caitlin Dearden

It concerns me that we are starting to get accustomed to the “roller-coaster” ride that has become the wool market. The wild fluctuations are causing sellers a headache, deciding whether to sell, pass lots in, withdraw or wait.

We can only guess what this is doing to the exporters and processors, as they manage supply requirements alongside the unpredictable price movements of recent months. It is hard to imagine anyone is pleased with the recent volatility and it must be damaging the wool markets reputation internationally.

The Eastern Market Indicator (EMI) rose 32 cents or 2.1% (after losing 97 cents or 6% last week), to close at 1543 cents. The Au$ also rose to US $0.675. This saw the EMI in US$ also improve 26 cents to end the week at 1041 cents.

The Fremantle sales also fared well, with the Western Market Indicator recovering 43 cents of the  92 cents loss of last week to close at 1,653 cents. Again a small offering selling just 6,245 bales with a PI rate of 13.1%, modest compared to last weeks 40.8%.

Sellers reacted in what has become their normal response by “selling” into the rising market. The National Pass-in (PI) rate was 7.6%, compared to 33.4% of last week. AWEX reported that in response to last weeks big falls, growers withdrew large volumes prior to sale. For the week 4,620  bales were withdrawn.

A decreased offering of 28,149 bales came forward, with 26,015 bales cleared to the trade (Figure 2). There have been 116,533 fewer bales sold this season compared to the same period last year. This is an average weekly gap of 9711 bales.

As reported this week by Andrew Woods on Mecardo (view here), fine Merino prices have been under pressure from increased supply during the past 12-18 months, which has resulted in premiums shrinking to very low levels. As the fibre diameter approaches year earlier levels and then starts to increase, the supply of fine wool will steady and then begin to fall. This will reduce downward pressure on fine wool premiums. The reverse process, to a certain extent, will apply to broad Merino wool.

The dollar value for the week was $45.83 million, for a combined value so far this season of $512.71 million, and a bale average value $1,730.

While last week the Cardings indicators held against the tide, this week they were cheaper across the board, averaging a fall of 20 cents. The news from the Crossbreds types was that the 26-28 MPG’s improved, except for poorly prepared clips which were cheaper or were passed-in.

Next week an offering of 40,056 bales are rostered.

To continue to predict the market movements in this climate is a bit like following the formline of “The Wallabies”, you don’t know what you will get until the day. The long decline in wool export volumes should begin to play on processor inventories (assuming sales are continuing), so we will go for the market to continue on an improving trend for next week.

Do we need a long moratorium?

Posted on by Caitlin Dearden

The Department of Agriculture is taking submissions until October 28th that will help determine the future regulation of the live sheep export trade, including the proposed moratorium during the northern hemisphere summer. 

Analysis of seasonal live sheep mortality rates is presented in Figure 1. It shows the average monthly trend in mortality, the normal range (grey shaded zone) and an extreme boundary (upper and lower red dotted lines).

Traditionally the northern summer period (July to September) can see mortality peak. However, during the 2018 season the trade was suspended during this time resulting in no recorded mortalities from July to October. Interestingly, changes to shipping practices, such as reduced stocking densities, have seen much lower than average mortality rates outside the moratorium period for the later stages of 2018 and the first half of 2019.

Given that the usual peak in mortality occurs during the July to September period we assessed the impact on historic mortality rates for the 2005-2017 period if a moratorium had existed during these seasons.

Figure 2 highlights the rolling 12-month trend in mortality rates which shows the actual historic trend with the trade operating all year, unhindered (green line). Overlaid on the chart is the trend with July to September mortality rates excluded (orange line). Clearly, there is a reduction in mortality rates when the three-month moratorium exists. However, this moratorium comes at a cost to the viability of the industry, the supply chain and regional communities that rely on the trade.

To quantify the magnitude of the reduced mortality rates under the proposed moratorium, and to assess the potential impact of shorter moratorium periods we analysed the average long-term mortality figures based on a range of scenarios – Figure 3.

If you want to have your say on the impact of the moratorium make sure to submit a response to the Department of Agriculture discussion paper on the live sheep export trade here, before the 28th of October deadline.

What does it mean?

During the 2005 to 2017 period when the live sheep export trade operated without a moratorium the long-term average mortality rate was 0.80%, which equates to 400 sheep per shipment of 50,000 head.

Placing a moratorium only during August saw the long-term mortality rate decline to 0.75%, or 375 sheep out of a total of 50,000. A two-month moratorium, during July to August or August to September resulted in a 0.73% mortality rate, or 365 sheep. A three-month moratorium from July to September shows the mortality rate drop to 0.71%, which is the equivalent of 355 sheep out of a shipment of 50,000 head.

In terms of sheep survival, the difference between a one-month moratorium and a three-month moratorium is 20 sheep. The big question for our legislators is what is the cost of a three-month moratorium across the supply chain when you consider shearing teams of ten staff without work for a quarter of the year, small family business transport operators with 25% less work or feed suppliers with 30-40% less revenue?

Key points:

  • Changes to shipping practices during the 2018 season have seen live sheep export mortality rates reduce significantly, even accounting for the moratorium periods.
  • Long term average sheep mortality rates for the 2005-2017 period when no moratorium was in place were recorded at 0.80%, or 400 sheep out of a shipment of 50,000.
  • In terms of sheep survival, the difference between a one-month moratorium and a three-month moratorium is estimated at 20 sheep per 50,000 sent.

The market giveth, and the market taketh

Posted on by Caitlin Dearden

The concerns we expressed last week about the weak finish to sales in Fremantle came to fruition, with the Melbourne and Sydney markets quickly adjusting down on the opening day.

This proved a catalyst for a loss of confidence and the market tracked lower wiping out last week’s gains and then some.

The Eastern Market Indicator (EMI) fell 97 cents or 6% (after lifting 67 cents or 4.2% last week), to close at 1,511 cents. The Au$ also eased fell slightly to US $0.672. This saw the EMI in US$ give up “only” 72 cents to end the week at 1,015 cents.

Western Australia had a tough selling week, selling just 4,300 out of 7,300 bales offered, (a PI rate of 40.8%) with the Western Market Indicator dropping by 92 cents to close at 1,610 cents.

Sellers reacted to the sharp sell-off with the National Pass-in (PI) rate increasing for the week to 33.4%, up by a massive 26% on last week. Again W.A. was a major influence, with almost 50% of fleece wool not selling, for a combined W.A. Pass-in rate of 40.8%.

An increased offering of 37,021 bales came forward, with 24,600 bales cleared to the trade (Figure 2). There have been 112,839 fewer bales sold this season compared to the same period last year. This is an average weekly gap of 10,258 bales.

The decline in Australian wool delivered to the world’s processors is alarming, looking at the same periods (July to current) for 2017, 2018 & this year we see 442k bales sold in 2017, followed by 383k last year & 270k this year to date. This is roughly a 40% decline over three years in bales sold to the trade. There is little doubt that demand for wool has suffered, with a myriad of possible reasons to explain this decline.

The dollar value for the week was $42.07 million, for a combined value so far this season of $466.88 million, and a bale average value $1,707.

Trying to find any shining lights this week is difficult, with the Cardings indicators up by an average of 4 cents, however, Crossbreds types were not spared and fell by 50 to 90 cents.

The week ahead

Next week a much-reduced offering of 34,174 bales are rostered.

AWEX notes that the volatile market has left “sellers uncertain”, I think it is fair to say the exporters are also feeling the concerns. The massive movements almost on a weekly basis are unprecedented; this will be making life difficult for exporters advising and negotiating buying orders.

Swine fever forces China sheepmeat demand lift

Posted on by Caitlin Dearden

In the last month, African Swine Fever (ASF) has extended its reach to the Philippines, Korea and most disturbingly to Australian borders at Timor Leste. Additionally, official Chinese acknowledgment has surfaced regarding the scale of the impact on the Chinese pork industry. After the seasonal winter lull, sheepmeat exports from Australia to China have surged again as consumers scramble to fill a growing protein gap.

The first five months of 2019 saw significant growth in lamb consignments from Australia to China, peaking at 7,414 tonne swt in May. High prices for lamb and the winter lull in supply saw Chinese demand ease somewhat, although levels remained well above the normal seasonal range (Figure 1).

September saw a renewed surge in lamb export flows which took the monthly total to 6,141 tonnes swt. Year to date, the average monthly flow of lamb from Australia to China is trending 63% higher than the five-year average.

The jump in mutton flows from Australia to China were even more impressive over the September period, lifting 208% from the seasonal low posted for July (Figure 2). Year to date average monthly mutton exports are running 108% above the five-year average.

Combined, the flow of mutton and lamb to China this season is nearly at 100,000 tonne swt and represents 30% of our total export flows of sheepmeat this season (Figure 3). However, if we remain on current trajectories could see it reach to around 145,000 – 150,000 tonnes by the end of 2019.

What does it mean?

China has recently acknowledged that ASF has impacted their breeding herd with numbers down by around 35% this year. If their current infection and cull rate remains in place, they could see up to 200 million head of pigs taken out of their production system by the end of 2019. This would equate to a 40% loss in annual production, creating a protein deficit of up to 20 million tonne cwt.

Just for perspective, Australia’s annual production of beef is 2 million tonnes and our combined sheepmeat production is around 0.7 million tonnes, on a carcass weight basis. With no vaccine, ASF isn’t going to go away in a hurry from the Asian region. The disease will impact the global demand for protein for years to come.

For more information on ASF and the impact on the Australian agricultural environment contact us at [email protected] as we have detailed information available across multiple commodities and market sectors.

Mutton back in favour

Posted on by Caitlin Dearden

October has started out pretty well for sheep and lamb markets, with lambs finding solid support and mutton back on the rise. October is traditionally a time of strengthening supply, so we might be seeing another lift in demand.

The National Mutton Indicator (NMI) rise last week wasn’t a dead cat bounce, unless it’s one that has lasted two weeks. The NMI gained a further 24¢ this week to move back to 556¢/kg cwt (Figure 1). NSW and Victoria are leading the way, at 588¢ and 598¢/kg cwt respectively, while WA is dragging the chain, at 467¢.

In lamb markets, the Eastern States Trade Lamb Indicator (ESTLI) has spent a seventh week sitting on support at 800¢ (Figure 2). This week the ESTLI closed at 803¢/kg cwt, with NSW at a premium and other states in the 740-760¢ range. Again, WA is the cheapest lamb state, at just 630¢, a significant discount to the east coast.

Traditionally sheep and lamb supply rise sharply at this time of year. After a couple of weeks interrupted with public holidays, figure 3 shows we should see at least a 10% increase in combined sheep and lamb slaughter. We’ve seen this on the five year average, and in each of the last two years.

Theory says for lamb and mutton prices to remain at current levels demand will have to strengthen, and with the commentary on the African Swine Fever ramping up, there is every chance exporters will be able to pay current prices for more stock.

Next Week.

Still no rain on the forecast, so we can expect supplies to at least follow seasonal trends, and maybe increase faster than normal. This could see prices start heading towards seasonal lows, but there is plenty of kill space to fill, and demand seems to be strong at current prices.

Plenty of price variance across the country

Posted on by Caitlin Dearden

Lamb prices continued to track along sideway in east coast markets, but there were some wild swings in the remote states.  The Eastern States Trade Lamb Indicator (ESTLI) slipped below 800¢ for the first time since May, but things are worse in Tasmania and WA.

NSW has held a strong premium in saleyard trade lamb prices for the last month, and little changed this week.  NSW trade lambs are carrying the ESTLI, sitting at 823¢/kg cwt, while the ESTLI is at 796¢.  In Victoria and SA trade lambs are dragging the ESTLI down, sitting at 767 and 768¢/kg cwt respectively.

It is likely the difference between NSW and southern states is quality related.  There are plenty of sucker lambs in NSW yards, while the smaller numbers in Victoria as being depressed by small pens of old season lambs.

Figure 1 shows that trade lambs in Tasmania tanked, losing 182¢/kg cwt over the course of two weeks.  Yardings are small in Tasmania at the best of times, and this time of year they are even smaller.  With Meat and Livestock Australia lacking quotes for over the hooks lambs in Tasmania it’s hard to get a handle on prices, but the very large discount to Victoria can’t last long.

Tasmania might have cheap lambs, but they had the second most expensive mutton this week.  The Tasmanian mutton indicator sits at 557¢, a small discount to NSW which was at 578¢.

WA lamb prices continued to decline this week, heading towards 600¢.  With strong export demand, we would expect lamb prices to be better in the west, and they are now at an abnormally large discount to SA.

Next week

The bounce in mutton prices this week took its discount back to the top of the 12 month range (figure 1).  This might add a little pressure to mutton values, especially with forecasts for a hot dry spring to come.

Lamb slaughter continues to climb, but demand seems to be keeping up, holding prices steady.  The southern supply flush is still to come, which should bring with it a seasonal price low. It might not be too much lower however.

Calm after the storm

Posted on by Caitlin Dearden

Last Thursday while Melbourne & Fremantle continued to lift, Sydney didn’t sell, so this week the market between centres firstly had to realign. This saw Melbourne down and Sydney up on Wednesday, however when the dust had settled at the close of the week there was a feeling of relief that the market overall was positive following a couple of tumultuous weeks.

Despite much speculation before the market opened that this week would see much of last weeks gains returned, the result was strong with a steady demand from buyers at the current market levels.

The Eastern Market Indicator (EMI) lifted 7 cents or 12% for the week, to finish at 1,542 cents. The Aus$ fell slightly to US $0.679. This saw the EMI in US$ fall by 9 cents to end the week at 1,047 cents.

Western Australia again had a positive result. The Western Market Indicator rose by 18 cents to close at 1,643 cents .

Again, it was the finer types that performed strongest, reflected across the three selling centres. Crossbreds were generally unchanged, however the Merino Cardings Indicators in Sydney and Fremantle lifted, with the 1,000-cent mark again in sight.

30,135 bales were offered to sale with 10.4% passed in. This saw 27,007 bales cleared to the trade (Figure 2). There have been 102,227 fewer bales sold this season compared to the same period last year. This is an average weekly gap of 11,359 bales.

The dollar value for the week was $47.09 million, for a combined value so far this season of $377.78 million.

The week ahead

Next week just under 30,000 bales are rostered, with the roster only increasing marginally in subsequent weeks.

Although the volatile market is still playing on all participants minds, there is somewhat a feeling of restored confidence. With the much reduced supply compared to previous years, the market should at least hold these levels, although the recent big swings will no doubt cause the market to remain on edge.

Unlucky mutton succumbs to Friday 13th

Posted on by Caitlin Dearden

The Eastern States Trade Lamb Indicator (ESTLI) continues to hold above the 800¢ level as the Victorian flush shows no sign of getting underway yet. However, a jump in sheep yardings in recent weeks has seen the National Mutton Indicator (NMI) take a bit of a slide.

Victorian weekly lamb yarding numbers are running close to the five-year trend currently, just shy of 30,000 head, Figure 1. Last season a drier winter and spring saw numbers present earlier but this year the season has been relatively good for Victorian producers so there will be the opportunity to hold onto lambs to get the most out of their pasture.

The ESTLI seasonal spring decline has stalled in recent weeks as the east coast weekly lamb yarding numbers hover around the 150,000 head region. It is the surge in Victorian lambs we see during September to November that is usually the catalyst for the ESTLI to reach its seasonal low so the next leg lower in price isn’t likely to come until the Victorian throughput starts to swell.

Turning to markets with elevated throughput, East coast sheep yarding levels have been surging of late to see recent figures extend beyond the upper boundary of the normal seasonal range – Figure 2. Above average yarding levels in NSW a key driver of the high east coast figures with weekly sheep throughput over the last month averaging 36% above the five-year trend in this state.

NSW mutton prices reacting accordingly this week posting a 6.4% drop to close at 542¢/kg cwt and dragging the NMI lower too. The NMI finishing the week 4.8% softer at 536¢/kg cwt. In contrast, the ESTLI managed a slight gain, up 1% to rest at 811¢/kg cwt – Figure 3.

Next week

All eyes on Victorian lamb throughput levels in the next few weeks as that will be the clue to the timing of the next dip lower in the ESTLI. Our projections put the ESTLI trough this spring at around the 730¢/kg level in early November.

For the superstitious among us don’t do anything risky today – its Friday the 13th after all… and stay clear of black cats, just for good measure.

 

Top twenty Merino price falls since 1947

Posted on by Caitlin Dearden

The August drop in greasy wool prices was substantial, with drought conditions increasing the sensitivity of farmers to lower wool prices at a time of high feed costs and high sheepmeat prices. This article takes a look at the average Merino micron price during the past seven decades and ranks the August price drop.

Greasy wool, like other commodities, is subject to big cyclical upturns in price and big cyclical downturns. The late rising cycle, which peaked in 2018, was boosted by falling supply. That factor remains, and looks likely to intensify, but seems to have been overridden by a combination of weaker retail demand and a supply chain upset by a tariff war between the USA and China.

Figure 1 shows a composite indicator which represents the average Merino micron price, from 1947 to last month in Australian cents per clean kg. The average Merino micron (as opposed to the average flock micron which is currently 1.1 microns broader) is also shown in Figure 1. The price is shown in nominal terms but even so the peaks of 1951, 1973 and 1988 stand out along with the 2018 peak.

Using this price series, the top 20 monthly price falls since 1947 have been calculated. These are shown in Table 1. The winner in terms of largest monthly price fall is February 1991 when the auctions recommenced after the failure of the Reserve Price Scheme (a salient reminder to anyone suggesting we should attempt to manipulate supply in order to manipulate price – if it was that easy). The collapse of the RPS and its immediate aftermath, have another three places of the top twenty monthly price falls.

The next major set of price falls come in a year best remembered for its peak – 1951. Five of the top twenty monthly price falls come from 1951 alone, after the market peaked in March 1951. That is a big effort.

The 1973 peak takes out four spots with two in 1973 and two more in 1974.

Following the 2002 price cycle, which was a classic post stockpile liquidation cycle, prices fell by 17% in May 2003. This ranks as tenth on the ladder.

Amongst these price falls August 2019 ranks ninth in proportional terms. In nominal terms, it is the largest fall but for a valid comparison to the earlier periods prices need to be adjusted for inflation.

The history of price falls after major cyclical price peaks suggests we could experience some more months (not necessarily staring away) of significant price falls. It is possible that the low and falling supply will help mitigate further big monthly falls. In 1988, supply was at peak levels while in 1951 supply was rising. In 1973, the greasy wool supply had fallen from recent levels but was still relatively high. The 2002 cycle was different as supply had fallen significantly in the previous decade.

Key points:

  • The August fall in Merino price ranks ninth in proportional monthly price falls during the past 70 years.
  • Following previous major price peaks, where supply was rising or was already high, there were a number of large month falls in the subsequent 1-2 years.
  • Supply is different in this cycle as it is low and falling, which may help reduce the number of big monthly price falls.

What does this mean?

The August price fall in the greasy wool market was not unusual when previous down cycles from major peaks are considered. Low supply remains an issue in the Australian greasy wool market, and it may show up by limiting the number of big monthly drops in price we experience.

Did the dead cat bounce?

Posted on by Caitlin Dearden

The wool market had a small reprieve from the exhaustive losses that began in June. We did see a similar pause a fortnight ago, although reports from the auction floor suggest that this time around it might be the point of recovery as glimpses of fierce competition were observed on day two.

The Eastern Market Indicator (EMI) fell 32 cents on the first day of sale but recovered 22 cents on Thursday to end the week at 1,365 cents. The Au$ rose to US $0.682 at the weeks close.  As a result, the EMI in US$ terms actually saw a 9 cent gain for the week to finish at 931 US cents (Table 1).

In USD terms the Merino market has basically given up all its gains made since 2015, in the space of 7 months.

It was in Fremantle that AWEX reported a “noticeable change in the room” in the last hour of selling, with strong competition lifting prices. There was an overall loss across all fibres and the Western Market Indicator lost 33 cents on the week to close at 1,383 cents.

Most Merino types saw losses in the range of 10 to 30 cents. Crossbreds and Cardings managed to source some interest. 28 to 30 micron wool recorded gains of 5 to 10 cents, while the Cardings Indicators rose 10 to 30 cents in all three centres.

A significant proportion of sellers withdrew their offering prior to sale. A total of 21,694 bales were offered, of which 11.5% were passed in. Just 19,194 bales were sold for the week. Incredibly, in the seven weeks of this season, 81,731 bales fewer sold than the same period last year and 2018 was already a season of low supply to compare to.

The dollar value for the week was $29.32 million, for a combined value so far this season of $296.49 million.

Prices on the wool forwards market are currently sitting above the spot market, in a rarely seen case of contango. This provides further confidence that the physical market will pick up momentum in the coming weeks.

The week ahead

Was this week a case of a dead cat bounce or have we found the base is the question on everyone’s mind. Positive news in the planned resumption of US-China trade talks may have been the pinch of confidence that buyers needed.

Next week 27,923 bales are rostered on offer across Sydney, Melbourne and Fremantle. The following weeks 33,465 bales and 28,654 bales are expected.