Category: Sheep

Mutton leading the charge to new heights

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  • The ESTLI is trading 28% higher than this year’s low but is yet to break all-time price highs.
  • The NMI is 47% higher than this season’s low and has pushed above the record high price set in 2016 of 526¢.
  • Seasonal percentage price gain/loss patterns suggest that an ESTLI peak near 900¢ and NMI peak approaching 660¢ this year is not out of the question.

This time of the season we expect to see sheep and lamb prices testing higher and the National Mutton Indicator (NMI) hasn’t disappointed, reaching record heights last week of 544¢/kg cwt. The Eastern States Trade Lamb Indicator (ESTLI) has been pushing northward too but is yet to beat it’s 2018 winter peak of 884¢/kg cwt. What can the historic seasonal pattern tell us about this year’s peak for the NMI and ESTLI?

The ESTLI is sitting around 28% higher than the February 2019 seasonal low of 619¢ but is yet to crack the 800¢ level. It’s still nearly 11% short of the winter record peak price of 884¢ achieved last season. In contrast, the NMI has rebounded 47% from the February seasonal low of 369¢ and has well and truly sailed into unchartered territory. After eclipsing the record high of 526¢ set in June 2016 the NMI has pushed toward the 550¢ level in recent weeks (Figure 1).

Analysis of the percentage price gain/loss pattern for the ESTLI since the start of 2019 demonstrates that after a similar first quarter trend to the 2018 season, trade lamb prices across the east coast have begun their seasonal price climb earlier than last year (Figure 2).

In 2018 the ESTLI didn’t start to rally until late April/early May but this season we have seen the ESTLI gaining ground since March. The long-term seasonal average pattern for the ESTLI highlights that prices don’t usually peak until late July/early August, so we may have a way to go yet for trade lamb markets. If we assume a winter peak for the ESTLI nearer the upper end of the 70% range, at a 35% gain on the January 2019 opening price, this puts the 2019 peak at 900¢/kg cwt.

The seasonal percentage price gain/loss pattern for the NMI shows that for the 2019 season mutton prices are broadly on track to reach their seasonal peak during June/July (Figure 3). Projecting a relatively normal seasonal trend, as outlined by the ten-year average pattern, shows that a 40% gain on the January 2019 opening price isn’t unrealistic and this would see mutton peaking at around 575¢/kg cwt.

What does it mean/next week?

Interestingly, the continuation of strong export demand for mutton could see the percentage price pattern trend toward the upper boundary of the 70% range. A winter gain closer to 60% from the January 2019 opening price could see the NMI stretching towards 660¢.

Wool Week celebrations swing to the buyers

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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.

Weekly Wool Forwards for week ending 24th May 2019

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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

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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.

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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.

Weekly Wool Forwards for week ending 18th May 2019

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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

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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

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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.

Weekly Wool Forwards for week ending 10TH May 2019

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A busy week on the forwards market, the first in quite a while, with 14 trades agreed. The lions share of the market has leant heavily into medium fibers, where 9 trades for 19 micron were agreed, most looking far into the future.

In the fine fibers, one trade was agreed for 18 micron in June for 2,340¢.

For 19 micron wool, one trade was dealt for July at 2,245¢. For 2020, two trades were agreed for July at 2,150¢, one for October at 2,155¢ and one for November at 2,125¢. For 2021, one trade was dealt for January, March, April and June, all agreeing at 2,155¢, a true testament to the flat forward curve.  In 21 micron, one trade was dealt for June at 2,250¢.

In course fibers, one trade was dealt for 28 micron in June, agreeing at 1,250¢ and one for February 2021 at 935. One trade was dealt for 30 micron in August for 900¢.

A bit of rain and it all turns green

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The title of this commentary isn’t referring to the grass but the sale yard price board for lamb and sheep across the east coast. Although, if we keep seeing rain falling in all the right places it won’t be long before the pasture starts to green up as well.

This week finally saw some decent rain to large parts of Western Victoria and Western NSW with falls extending beyond 50mm in some areas – Figure 1. A welcome relief to those that have seeded crops but also bringing optimism to sheep producers hoping to get some pasture growth before the winter chill sets in earnest.

The Eastern States Trade Lamb Indicator (ESTLI) responding as expected to the improved climatic conditions with a 24¢ rally on pre ANZAC day prices from last week to close at 745¢/kg cwt yesterday. Expectations of tight lamb supplies as we head into winter has seen the ESTLI push higher earlier than last season and now sits over 150¢ higher than at this time during 2018 – Figure 2.

As outlined in this week’s analysis the concerns over tight winter supply has seen Coles issue forward prices for July at 830¢/kg which bodes well for producers with supply to offer over the colder months.

The onset of rain lifted prices for sheep and lamb categories across the eastern seaboard, with all NLRS reported east coast categories recording gains this week between 20-65¢, Figure 3. East coast mutton responding particularly well to the wet, recording an 8% lift on the week to see it testing all-time highs to close at 547¢/kg cwt yesterday – it wasn’t that many years ago that lamb producers would have been ecstatic to be getting prices near the 550¢ level.

What does it mean/next week?:

The forecast for rain into the week ahead shows lighter falls expected for Western Victoria and Western NSW with the rain band moving across to the eastern regions of both states. The sales program has returned to normal after the ANZAC and Easter disruptions, so we will get a clear picture of how late Autumn supply is stacking up in the coming weeks.

While the rain persists and as supply starts to dwindle lamb and sheep prices will continue their march northward. Despite the recent heroics of an unnamed Game of Thrones character, kept vague so as not to be accused of spoiling plot lines, “winter is coming”.