Month: May 2017

Higher supply after Easter break doesn’t dampen prices

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A recovery in slaughter figures as we move away from the shortened Easter and ANZAC weeks noted, but not enough to dampen demand as prices for young, store and heavy cattle lift slightly over the week.

Figure 1 shows the seasonal pattern for East coast slaughter for the week ending 21st April. While the numbers don’t yet represent the shortened ANZAC week it is still clear to see the recovery in supply after the Easter dip. East coast slaughter for the week rising to 109,500 head, a 10% increase from the previous release.

Improved throughput and slaughter unable to weigh too heavily on prices with the Eastern Young Cattle Indicator (EYCI) lifting slightly to close nearly 9¢ higher at 659¢/kg cwt. East coast heavy steers showing a similar lift up 7¢ to 308¢/kg lwt, or 571¢/kg cwt (at a dressing percentage of 54%). Trade steers only managing a marginal increase with a 2¢ gain to 357¢/kg lwt, or 661¢/kg cwt – figure 2.

The week ahead

A forecast for some light rainfall for parts of Queensland and Victoria over the next week shouldn’t be enough to hamper transport so supply of cattle should continue to improve post Easter. Meanwhile, reduced beef cold storage levels for April in the US as they head into their “grilling season” should see the beef export prices supported in the coming weeks and will provide some encouragement to local processors on any price dips. These two factors set the stage for some price consolidation around the 650¢ level for the EYCI in the short term.

Heavy steer spreads to EYCI during a favourable season.

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Key points:

  • So far during 2017 heavy steer spreads to the EYCI have been trekking along the lower end of the normal range for East coast cattle.
  • The spread pattern in each state has been roughly mirroring the pattern set by the 2011/12 average pattern, the last time we experienced a favourable season along the East coast.
  • Young cattle are likely to continue to outperform finished lines for the next six months but the discount spread is likely to narrow as we transition into a drier climate into 2018.

During a favourable season optimism runs high among restockers and opportunistic cattle traders supporting demand and prices for store/young cattle. The added buying competition between the three main purchasing groups (restockers, lot feeders and processors) will often see the Eastern Young Cattle Indicator (EYCI) outperform the price patterns for finished lines, as there is really only one buyer type for fat cattle – the processor. This piece will take a look at what can be expected for the spread pattern between heavy steers and the EYCI along the East coast for the next six months.

The most recent favourable season for cattle traders along the East coast occurred during 2011/12, on the back of widespread rainfall that began in 2010. Each figure accompanying this analysis piece displays the spread pattern for heavy steers compared to the EYCI for 2017 for Queensland, NSW and Victoria. Overlaid with the spread pattern for the current season is the average spread pattern for 2011 and 2012, along with the long term spread pattern and the “normal” range (highlighting where the spread has fluctuated for 70% of the time over the last decade).

Interestingly, so far for the 2017 season the spread pattern in all three states has been following a similar trajectory to the 2011/12 average pattern. In addition, each state’s spread pattern for this season is trending close to the lower end of the 70% banding, reflecting that the favourable conditions have supported young cattle prices more than the price for finished cattle. Perhaps somewhat unsurprisingly the state that was hit hardest by the most recent cattle turnoff, Queensland, is experiencing the widest spread between young and finished cattle as the requirement to rebuild the herd is likely to be most evident in that region.

The Queensland heavy steer to EYCI spread normally experiences a trough during Winter and, based off the current pattern, a widening of the discount spread to 20-25% during the middle of the year would not be out of the question. The NSW heavy steer to EYCI spread is likely to remain fairly stable through the middle of the season, ranging between a 7-12% discount for the next six months. The Victorian heavy steer spread normally follows an opposite pattern to Queensland, on account of the different seasonal factors present in the north/south of the country, and is anticipated to reach a peak during Winter near the 3-5% discount level.

What does this mean?

It is likely the spread patterns for each state will continue to trek along the lower end of the 70% band for much of the second half of the year. However, as the confidence level on longer term climate predictions for the 2018 season grows into the later stages of 2017 spreads may begin to return to more normal levels, particularly if the transition from a wetter to drier climate cycle becomes more evident.

Next week we’ll get a handle on supply

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It’s hard to know whether the falling lamb slaughter is due to lower supply, or the short weeks taking some production days out.  We’ll hopefully find out next week when we finally get back to full production after three interrupted weeks.

One of the most interesting numbers found this week was MLA’s weekly lamb slaughter for the week ending the 21st of April.  Lamb slaughter came in at just 293,342 head, the lowest level since July last year.  In the week ending the 21st Lamb slaughter fell 5%, and also sat 5% below the Easter levels of 2016.

Despite weaker slaughter levels, lamb prices fell last week, and continued to ease this week, the Eastern States Trade Lamb Indicator falling 22¢ and hitting a four week low of 645¢/kg cwt.  It will be interesting to see if the ESTLI can find some support at 650¢/kg cwt.

There are some forward contracts out there pitched at 650¢ for May and 660¢ for June and July.  This suggests lamb supply might remain tight for some time yet, and we should see the ESTLI bounce over the coming weeks.

Not all lamb prices fell this week, Merino lambs gained 19¢ on the east coast, while light lambs were up 12¢.  Neither quite managed to hit record highs, but are not far off at 611¢ and 673¢/kg cwt for Merino and Light lambs respectively.

Mutton values also eased this week, losing 21¢ for the week on the east coast to sit at 482¢/kg cwt.  Mutton still sits 167¢ above the same time last year, which on a 25kg sheep equates to a very handy $42/head.

The week ahead

It’s unusual for lamb or sheep supply to improve at this time of year, with the only time it has happened being in 2011 when prices started to ease in earnest around this time of year. The difference in the seasons is probably what is going to hold prices this time.  In 2011 supply had been low in the previous spring, something we didn’t see this year, and the autumn break was late.  This saw more lambs come to market, which are likely to be held this year.

 

 

Bit of a mixed bag after the recess

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An increase in bales offered this week as the wool market clears out some of the Easter recess build-up of stock took some of the heat out of the medium fibre price action. However, reports that there is limited supply left in store and keen export buyers still sniffing around meant the price correction was limited.

Indeed, most of Wednesdays losses in the finer end were recovered during Thursdays trade to see the 16.5 to 19 micron classes close the week slightly higher in the north and only marginally softer in the south. Microns less than 19 mpg in Fremantle the worst performers in the finer categories, down around 10-15¢.

Medium wool making up the lion’s share of the correction in price across all three selling centres with 19.5 to 23 micron wool posting declines ranging from 10-40¢. Coarse fibres remaining mixed, with price movements on the week fluctuating between gains and losses of less than 5¢.

Just over 52,000 bales were listed for sale this week and the softer prices on Wednesday saw the pass in rate above 20% in the West. However, by the end of Thursdays session prices had stabilised and the pass in rates lowered across all three centres to close the week at 10.8%, with 46,565 bales sold – figure 2.

The week ahead

The anticipated tighter supply reflected in next week’s bales scheduled, with just under 40.800 listed for sale. All three centres are operating with auctions on Wednesday and Thursday and the reduced offering combined with a softening A$ should see demand keep prices firm.