Category: Sheep

East and West straighten up

Posted on by Jordan

Fremantle’s market sat at the top of the table for many individual MPG’s last week with a strong final day of sale. However, the glory was short-lived with the momentum carrying into the new week and Eastern market prices quickly moving higher. With prices wavering on the second day of sale, AWEX reported all three selling centres moved back into alignment.

The Eastern Market Indicator (EMI) gained 19 cents over the week to close at 1,574 cents. Currency markets took another hit. The AU$ dropped 0.6 cents to US $0.679, falling below the $0.68 threshold that it’s been hovering over for the last month. This meant the EMI in US$ hardly felt the rising market, with just a 2 cent increase on the week to 1,070 cents.

In Western Australia, the market had a solid jump on day one, with Fremantle MPG’s rising 25 to 39 cents. The softer market on day two saw the Western Market Indicator (WMI) 15 cents higher on the week to close at 1677 cents.

Growers were clearly happy to sell into the rising market. The pass-in rate dropped down to 7% for the week. The national offering of 36,110 bales was a small lift to last week’s volumes. The larger move was the bales sold, at 33,584 this was 5,472 bales higher than last weeks total. This season’s supply continues to lag well behind 2018 at a difference of 103,787 bales. The average weekly bales volume is currently 6,105 behind last year.

The dollar value for the week was $59.83 million, with the average bale value sitting at $1,781. The combined value so far this season is $786.73 million.

The crossbred sector saw mixed interest but kept within a +/-10 cent range from last weeks’ levels. The skirtings market followed the lead of Merino fleece closely, rising one day and falling the next.

The week ahead

Reports from brokers suggest volumes in store are starting to stock up with growers content with passing in their wool if prices don’t meet their mark. Many might be holding hope that the market will experience its usual kick in the New Year. Of course, this movement is far from guaranteed and caution needs to be taken. If this approach is widespread, the extra supply might take the shine off New Year’s prices.

A stronger offering is scheduled for next week’s sales with 40,726 bales currently on the roster across the three selling centres.

Mutton still finding support

Posted on by Jordan

There was no real impact from the rain this week in sheep and lamb markets, with a cautious approach seemingly being taken. There was also the issue of the three month outlook and continued strong supplies.

Figure 1 shows sheep supplies in saleyards have been running well ahead of last year’s levels, and the five year average. Sheep yardings are rarely above 100,000 head but it hasn’t really dampened the price at all.

The National Mutton Indicator (NMI) managed a small lift this week, despite the strong supplies.  Figure 2 shows the NMI is a touch under 550¢, largely being propped up by Victoria where mutton is making 594¢/kg cwt.

Lamb markets were also steady on the east coast, as the spring flush of lambs stalled. NSW remains at a solid premium to other east coast markets, at 777¢ vs 735¢/kg cwt in Victoria and SA.  On the west coast, lambs are a long way behind the east coast.

Figure 3 puts the Western Trade Lamb Indicator (WATLI) at 632¢/kg cwt as lamb supplies continue to flow. The WATLI is, however, at a historically strong price for this time of year, and has plenty of upside.

Restocker lamb prices continued to fall this week, with the rain having little impact on the expected trend. As we draw closer to summer, declining feed reserves will continue to put pressure on restocker values. That is, of course, if rainfall doesn’t see feed reserves improve in a hurry.

Next Week.

The three month rainfall outlook isn’t great for most areas, and given the length of the drought, no one is ready to jump in just yet. Lamb supplies should continue to edge higher, but sheep supplies could easily contract, whether it rains or not. There might be a little further downside for lambs, but it looks like support for sheep is here to stay, and that should put a floor under lamb values.

Sellers unimpressed

Posted on by Jordan

As reported last week, sellers have been prepared to step out of the market when demand is weak, and this week the high pass-in rate told the story of the wool market performance.

There is no doubt that demand is not great right now, however, if the supply was not lightened by the high pass-in rates in the weeks where the market retreat, we could well be seeing bigger falls and greater fluctuation. It is hard to quantify the effect this grower response is having, but it must be supportive for the market.

This week the Eastern Market Indicator (EMI) lost 39 cents (after rising 77 cents over the last 2 weeks), to close at 1555 cents. The Au$ fell over 0.5 cents to US $0.686, causing the EMI in US$ to also fall 36 cents to 1,068 cents. The WMI also fell, albeit with a stronger finish in Fremantle (with a gain of 10 cents on Thursday), however for the week the loss was 25 cents for a WMI close of 1662 cents.

As the three-week run of improving markets came to an end, so too did the single-digit pass-in rates, – sellers again deciding to hold wool back on a falling market. This week the PI rate was 17.5% nationally. As a side note, almost 25% of Merino Fleece wool nationally was passed in on Thursday; in the West almost 26% of the offering was passed.

Sydney seemed to struggle to find a footing all week, with a specialty fine wool sale unable to inspire, although buyers selectively bid on wool with good measurements. Melbourne and Fremantle reported a positive tone towards the end of selling on Thursday, no doubt supported by firm grower reserves limiting sales.

There was a slightly smaller offering of 34,084 bales, just over 4,000 bales fewer compared to last week’s volumes. The high pass-in rate meant that there was also a big drop in in the number of bales sold, over 6,000 fewer compared to last week at 28,112 bales. The supply shortfall continues, with 105,884 fewer bales sold compared to the same period last year. This equates to an average weekly gap of 6,617 bales since July.

The dollar value for the week was $48.84 million, with a bale average value of $1,737, down $87 per bale on last week. The combined value so far this season is $726.90 million.

AWEX reported that the Crossbred and Cardings sections were not spared and gave up significant ground, however, a mild recovery in the Cardings in Fremantle was in line with the generally positive close to the week.

The week ahead

Next week an increased offering is listed, with 38,500 bales across the three centres.

We have been taking the lead for the upcoming week based on the closing sentiment in Fremantle, so we have a cautiously positive outlook for next week.

Pressure on markets but support should be found

Posted on by Jordan

Sheep and lamb markets continued to slide this week, with supply ramping up. We don’t know what happened with yardings and slaughter this week yet, but last week sheep slaughter was heading higher.

Figure 1 shows sheep slaughter on the rise, well above average levels and heading towards last year’s extraordinarily strong

rates. Improving supply of sheep, and to a lesser extent lamb, has put a dampener on prices.

The Eastern States Trade Lamb Indicator (ESTLI) fell 12¢ to 760¢/kg cwt (Figure 2), a six month low.    Figure 2 shows NSW Mutton prices fell more heavily, losing 34¢ to 550¢/kg cwt, but they are doing a bit of a yo-yo at the moment, having gained a similar amount a fortnight ago.

In Victoria, Mutton prices held around 600¢, as while supply is increasing, demand for mutton is supporting prices.

Store sheep markets are running hot. With young ewes making well over $200 per head and ewes with lambs reportedly making over $400, it appears restockers are getting in before the anticipated price rise.

The price rise could come sooner rather than later.  At least markets should steady with the rain on the forecast over the coming week. There might not be many sheep left in NSW, but the rain will see any that might have been sold being held. It will be hard for sheep slaughter to keep rising.

WA sheep and lamb markets continue to lag well behind the east coast. This isn’t unusual for this time of year, with the season finishing. Demand from across the Nullabor might add some support if the rain keeps coming.

Next Week:

There were some strong forward contracts released for Northern NSW yesterday, with lamb at 820¢ and mutton over 600¢ in January. These prices are ahead of current rates, but if the forecast rain falls, and is followed up, we could get there a lot quicker.

Sellers line up

Posted on by Jordan

It is an unusual situation in commodity markets where the seller can move the market price, but a glance at the wool market over the last few months shows growers either selling aggressively on market rallies, or holding back on soft markets.

The pass-in rate has been in direct contrast to market moves, a falling market met with high pass-in rates and vice versa. This strategy has certainly supported the wool market with sellers reducing supply in the weeks where buyers have had little interest.

This week the Eastern Market Indicator (EMI) gained 49 cents (after rising 28 cents last week), to close at 1594 cents. The Au$ also rose to US $0.693, causing the EMI in US$ to also lift by 46 cents to 1,104 cents. The WMI also rose, however, a softer market in Fremantle on Thursday resulted in a gain of just 15 cents to 1687.

This market rise resulted in another week of single digit pass-in rates – sellers taking the opportunity to clear wool on a rising market. This week the PI rate was 6.4% nationally.

There was a bigger offering of 37,381 bales, almost 8,000 bales more compared to last week’s volumes. This resulted in a big lift in the number of bales sold, up 7,200 on last week to 34,870. This is the largest clearance to the trade since May. The supply shortfall continues though, compared to the same period last year 108,541 fewer bales have been sold. This equates to an average weekly gap of 7,200 bales since July.

The dollar value for the week was $63.65 million, with a bale average value of $1,825, up $55 per bale on last week. The combined value so far this season is $678.15 million.

AWEX reported that the Crossbred section was the strongest on the week, with prices lifting 35 – 70 cents. Cardings again were quoted dearer with locks, stains and crutching posting 50 to100 cent increase, to average a 65 cent lift.

The week ahead

Next week another solid offering is listed, with 36,400 bales across the three centres. This size roster is forecast for the next three weeks.

Despite the increased offering the market this week was strong, there was however a cautionary note with Fremantle on the last day tending weaker.

Uncharacteristic lift in NSW throughput weighs on price

Posted on by Jordan

Significant increases to yarding levels for both lamb and sheep across the eastern states in recent weeks has started to weigh on prices. Higher than average lamb yarding was noted in Victoria but the big lift in lamb throughput was reserved for NSW. Mutton yarding levels were elevated in all east coast states.

Weekly east coast lamb yardings levels hit a seasonal high last week at 231,591 head representing a 64% jump on the week prior. This places lamb yarding levels 16% above the five-year seasonal trend for this time in the year (Figure 1).

Lamb throughput in Victoria is trekking 9% ahead of the seasonal average but underpinning the jump in east coast lamb volumes at the saleyard has been NSW flows. Lamb yarding for NSW last week was up 48% on the week prior and is sitting 31% higher than the five-year average trend at 142,305 head.

Increased throughput wasn’t reserved for lambs alone with mutton numbers swelling too. Weekly east coast sheep volumes at the saleyard up 79% on the previous week to hit a seasonal high at 139,169 head. At this level east coast sheep yardings are sitting at massive 94% above the five-year seasonal average and you would have to go back to 2006 to find a higher weekly east coast sheep throughput level (Figure 2).

Higher than average sheep yardings were noted across all east coast mainland states with SA 42% above the five-year level, Victoria 51% higher and NSW, again underpinning the broader east coast figures, with sheep yarding levels 135% higher than the seasonal trend for this time in the year. Figure 3 shows the combined lamb and sheep throughput for NSW and it demonstrates how unusual this increase in saleyard volume is.

The National Trade Lamb Indicator (NTLI) feeling the brunt of the increased supply easing 4.2% this week to close at 770¢/kg cwt yesterday. Unsurprisingly, NSW Trade Lambs were lower too, slumping 4.8% to finish at 783¢/kg cwt. The National Mutton Indicator (NMI) eased 2.1% this week to 555¢/kg cwt. NSW mutton prices holding up well considering the elevated supply in recent times, dipping just 2.2% to close at 577¢/kg cwt.

Next week

The Victorian spring flush is underway but the significant numbers we see into November are yet to come. There is some rain forecast for Victoria this week which will allow producers to hold lambs for a bit longer if they are keen. Prices favour a downside bias until some of the Victorian supply is able to be accounted for.

How volatile are wool prices?

Posted on by Jordan

As humans, we outweigh the reaction to losses more than the benefit of gains. So, it pays to look at longer-term data to test this emotional reaction, seeing whether it is grounded in reality or simply an emotional response. This article takes a look at the size of cyclical downturns in Merino wool, beef and wheat during the past two decades to put the recent fall in wool prices in a less emotional context.

The average Merino micron price is down AUD700 cents on mid-2018 levels. Peter Small, writing in Sheep Central recently, described a young wool grower asking about price stabilisation as an answer to recent falls in the wool price (view here). The question implied that the fall in wool prices during the past year has been unusual, but is it?

Figure 1 shows the monthly average for the average Merino micron price from 1996 to last month. It nearly touched 2500 cents in mid-2018, and is now around 1800 cents. It has certainly been a big fall in price, from a high level. Also shown in Figure 1 is the change in price from the highest price level of the previous five years. The idea is to look at the depth of the down cycles in terms of the proportion that prices fall from the peak to the trough (P to T). In the late 1990s, when many apparel fibre prices were depressed, the Merino price fell from 1997 peak levels by around 45%. It fell a similar proportion in 2005, down from the 2002-2003 peak. In 2009, the price only fell by 30-35%. In 2012 through 2015 the price fell from the 2011 peak by a more modest (again) 30%.

Currently, the market is 27% below 2018 peak levels, roughly on par with the 2012 downturn. The current downturn is therefore (so far) moderate and similar to the previous down cycle. The down cycles have become less severe in the past two decades, which makes sense as the level of stocks and production have fallen.

How does wool compare to beef? Figure 2 repeats the exercise for a NSW saleyard trade steer price. Since the 1990s down cycles have resulted in a fall of 25-30% from prior peak levels. The 2014 down cycle was appreciably smaller at around 20%.

Figure 3 treats a NSW wheat price series (Newcastle zone) in the same manner. Wheat shows up as more volatile, with some hefty down cycles where prices fell by 50%. There have been a couple of down cycles in the order of 30%, as well.

The take-home message from this very brief look at price volatility is that the average Merino wool price has comparable price volatility to beef and wheat. Down cycles do vary, but it is hard to make a case for the Merino price being in a league of its own in terms of price volatility.

What does this mean?

The average Merino price has fallen by around 700 cents since mid-2018. For those of us anchored in the 1990s that is a frightening number as it was once a (successfully) hedgeable price in its own right for 21 micron. In proportional terms though, the current downturn in wool prices looks to be playing out to it standard of the past decade. In comparison to trade steer and wheat, the wool market is not overly volatile – just a commodity price which goes through patches of strength and weakness.

Rising Tide lifts all boats

Posted on by Jordan

It was a steady and solid opening to wool sales this week, which offered a welcome respite to buyers and sellers alike from the recent wild roller coaster ride for wool prices over the past month. With lifts in price across the board, the pass-in rate retreated to single-digit figures.

This rising sentiment continued to the close of selling, with AWEX late on Thursday reporting Fremantle market “strengthening all the way to the final hammer.”

The Eastern Market Indicator (EMI) gained 28 cents (after losing 26 cents last week), to close at 1545 cents. The Au$ also rose to US $0.684, and resulted in the EMI in US$ also rising 28 cents to settle at 1,058 cents. The WMI had a strong week benefiting from selling last, rising 51 cents to 1672.

The market improvement was general and across the board. Gains of 1.5 to 2.4% were reflected across the range of MPG categories, a case of a “rising tide lifting all boats”.

A look at the relative centre offerings shows that with Sydney only selling on day 1, it only offered 4,972 bales to sell 4,577, while Melbourne over 2 days sold 14,627 out of the 15,498 bales that came forward. Fremantle passed in 8.3% of the 6,607 bales offered, for a clearance of 6,057.

There was a much-reduced offering of 29,760 bales this week, almost 6,000 bales fewer than last week’s volumes. The National Pass-in (PI) rate was half of last week at 7.1%, which meant 27,641 bales were cleared to the trade, 2,548 less than last week. The supply shortfall is still significant, with 113,600 fewer bales sold so far this season compared to the same period last year. This equates to an average weekly gap of 8,114 bales since July.

The dollar value for the week was $48.93 million, and a bale average value $1,770. The combined value so far this season of $614.50 million.

Crossbreds performed in line with the general market, while Cardings were quoted up 3%, however it was only Melbourne & Fremantle centres that contributed to the rise.

The week ahead

All centres return to selling both Wednesday and Thursday next week, with an increased offering of 39,000, 10,000 more than this week.

Despite the increased offering, the positive end to sales this week should provide a solid platform for next week.

A little give and take

Posted on by Jordan

The shaky wool market opened this week lacking power. With a decent offering, the first day of sale saw instant corrections across the board, only to show signs of a resurgence at the days’ end.  This momentum carried through to a stronger market on Thursday, however it wasn’t enough for the market indicators to avoid overall declines on the week.

The Eastern Market Indicator (EMI) lost 26cents (after gaining 32 cents last week), to close at 1517cents. The Au$ also rose to US $0.678. This buffered some of the fall in the EMI in US$, dropping 12 cents to end the week at 1,030 cents.

The Fremantle sales proved weaker than its eastern counterparts on day one, falling 42 cents before regaining some ground on the second day of sale. The Western Market Indicator lost 32 cents on the week to close at 1,621 cents. AWEX reported that despite the price rises on day two, there were still many unwilling sellers, resulting in nearly 20% of the fleece passed in.

There was a much higher offering of 35,356 bales this week, an extra 7,207 bales on last week’s volumes. The National Pass-in (PI) rate was 14.6%, which meant 30,189 bales were cleared to the trade. This is the first week since March that we have seen the number of bales sold actually higher than the corresponding week last season. Of course, the supply shortfall is still significant, with 115,415 fewer bales sold so far this season compared to the same period last year. This equates to an average weekly gap of 8,878 bales.

The dollar value for the week was $52.97 million, for a combined value so far this season of $565.68 million, and a bale average value $1,732.

Crossbred were the worst performing category this week, losing 10 to 55 cents across the microns. After last week’s losses, the Cardings Indicators again held their ground with just a 5 cent average fall.

The week ahead

A smaller offering is rostered for sale next week of just 32,970 bales. Sydney is down to just one day of sale on Wednesday, while Melbourne and Fremantle are selling both Wednesday and Thursday.

Let’s hope the positive tone moving through the market at the end of this week carries through.

Spring mutton dressed up as lamb

Posted on by Jordan

There has been plenty of commentary around the spring rally in mutton prices and last week we saw the unusually strong prices almost hit a record in Victoria. Sheep markets have rarely been stronger and normally it’s the price low that we see at this time of year. So should growers be selling ewes rather than lambs?

The credit for rising mutton prices has been squarely placed with Chinese demand. Increasing demand can be the only answer when we see price rises like the one shown in Figure 1.  The 10% rise in the Victorian Mutton Indicator from the low has been accompanied by an 11% increase in slaughter. Rising supply and rising prices equals stronger demand.

The Victorian Mutton Indicator is 61% stronger than the same week last year. That is more easily explained by supply, with east coast sheep slaughter down 22.5% on September last year.

The relative price of mutton has also hit some milestones. The Victoria Mutton Indicator last week moved to just a 23% discount to the Eastern States Trade Lamb Indicator (ESTLI). Mutton hasn’t been this close to lamb since May 2018, although it was in October 2016.

Figure 2 shows the steady ESTLI and rising mutton price has the spread at levels well above the normal range for this time of year.

As we move towards the end of spring and paddock feed supplies start to dwindle, sheep producers will start looking at what to sell. We know that sheep and mutton both have further potential upside, but it looks like there might be more upside in lamb.

Lamb prices averaged 10% higher than current prices in May, June and July, while mutton values have rarely been higher. Cast for age ewes are very good selling at the moment, as are lambs, but there is likely more upside in young stock than old. This is especially the case for young female stock when the drought breaks.

What does this mean?

Strong mutton prices make selling decisions relatively easy this year. Older ewes might have another 5% upside in the meat market but lambs are more likely to rise, and will rise further.  In order to conserve feed, any older ewes which are left can be cashed in, and efforts concentrated on finishing lambs or getting ewe lambs up for joining. Young ewes are going to be the real winners when it rains.