Tag: Sheep

ESTLI pushing through 900¢ again

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Just yesterday we released a piece on the prospect of a late Winter rally for the Eastern States Trade Lamb Indicator (ESTLI), signalling a test towards 935¢ this month. So far east coast markets are behaving compliantly, with the key lamb indicator finishing the week at 908¢/kg cwt.

Read the analysis on the Winter rally prospect here.

Despite the strong finish for the east coast Trade Lambs, they aren’t the most expensive category of lamb across the eastern states. Heavy Lambs rallied nearly 3% on the week to take the dearest lamb category prize at 958¢/kg cwt (Figure 1).

A breakdown of the state figures shows that NSW continues to drive the east coast prices higher, particularly for Trade and Heavy lambs with each category ending the week at 919¢ and 965¢, respectively. Compared to Victoria, NSW Trade Lamb is sitting 37¢ higher (Figure 2).

Delving further into the NSW figures, a wide price gap is appearing between these categories across the north and south of the state. This suggests that the dry conditions continuing to hamper the north are impacting on relative quality and volumes at the saleyard. Northern NSW Heavy Lambs are fetching 835¢ compared to 977¢ in the south of NSW, while Northern Trade Lambs are at 784¢ compared to 937¢ in the southern regions.

The National Mutton Indicator (NMI) managed to claw higher too this week, despite the best efforts of the WA mutton indicator acting as the deadweight to the national average. The NMI gained 1.2% to close at 585¢, while in the west mutton prices slid 13% to 416¢.

Seemingly the lack of live export buying interest in WA is hampering lamb and sheep markets over there, with all categories reported by MLA in decline this week. That is, except for WA Heavy Lamb which managed to creep up 6¢ to end at 842¢/kg cwt.

Next week?

There is more rain scheduled for Victoria and the south western tip of WA, but limited falls to SA and NSW again for the week ahead (Figure 3). As outlined in our analysis on the prospect of a late Winter rally, there is a chance for a final spurt higher towards the 935-950¢ level for the ESTLI during July, but there are signals we aren’t too far from peaking this season.

A sigh of relief for sale season opener

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It was almost possible to hear the audible sigh of relief from buyers & sellers when the wool market began the official 2019/20 season with a “much welcomed positive result”. AWEX reported that after June posted the 2nd worst result in AWEX history (since ’95), the market ended in positive territory for the week.

The Eastern Market Indicator (EMI) fell back slightly on Wednesday but by the close on Thursday had found an 8 cent gain to end at 1723¢/kg clean. The Australian dollar pushed back up through US 70 cents for the first time since early May, quoted at US$0.704.

AWEX report that while the opening sale is generally large as producers clear stocks held across financial years, this offering was well down on previous seasons. In fact, the offering was down almost 13,000 bales or 29.4% compared to last year.

While the lower flock number and drought influence on fleece weights are factors in this reduced supply, the strong prices over the past season have encouraged wool growers to sell wool rather than store in brokers sheds. Not-with-standing the recent high pass-in rates, the market at present is operating on record low volumes.

30,991 bales were offered at Sydney, Melbourne & Fremantle, just 2,000 more than last week. The pass in rate across the selling centres pulled back significantly to 6.3% for the week (20% last week), with Fremantle sellers only passing-in 8% compared to last week’s +30%. This meant that 29,046 bales were cleared to the trade, almost 6,000 more than last week.

There is a somewhat absurd tone to this market, last week buyers pulled the EMI back 51 cents, growers passed in 20%, and just 23,332 bales were purchased by the trade. This week, EMI rallies 13 cents, Pass-In rate drops to 6% and 29,000 bales were purchased by exporters. This suggests that there is little strategy on behalf of either buyers or sellers, with a “short-term” approach dominating.

Crossbreds were the only section to not rise, holding last weeks levels, while Cardings in the eastern selling centres were stronger, however, the West was cheaper.

The week ahead

Next week a combined offering of almost 35,000 bales is rostered across all selling centres in the leadup to the winter recess.

A good lead indicator for demand into next week was the strong finish to the Fremantle sale, after posting a 16 cent rise on day one, it followed up with a further 19 cents on Thursday.

ESTLI hits 900¢ but mutton has halted

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The lamb rally continued this week, as supplies continued to tighten.  The Eastern States Trade Lamb Indicator (ESTLI) set a new record, just hitting 900¢.  Mutton markets might have hit their peak, however, having come off in recent weeks.

After a brief dip there a few weeks back, which could have been in anticipation of a short week, the ESTLI price rally has made its way to 900¢/kg cwt.  The ESTLI was up 15¢ this week, and interestingly, just 12¢ higher than four weeks ago.  Current levels look like they are providing some resistance.

Tightening supplies are no doubt sending prices higher.  Over the last two years there have been periods where lamb supplies have been tight, and sheep have been tight.  It has been almost exactly two months since ovine slaughter has hit this level in a full week (figure 2).

Last week total sheep and lamb slaughter was 15% lower than last year, and 7.6% below the five year average.  It didn’t get this low at all during the price peaks last year, and it is still only June.

Figure 3 shows the National Mutton Indicator seems to have found its peak.  Sheep supply is tight, but is around the five year average, and it looks like processors are finished bidding up prices to try and draw out supply.

Mutton prices generally trend down in July, but it will be hard for that to happen again this year, as surely supply will remain tight for a while yet.

What does it mean/next week?:

For sheep and lamb prices to fall, either demand will have to weaken, or supply improve.  Traditionally lamb and sheep supply will fall for another couple of weeks, before starting to recover.  Last year the lamb supply didn’t come until August, so we may have a while to wait before we see prices ease.

 

 

 

Market says “no”!

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The question last week was “is this the bottom?” We had a clear answer this week,in the short term the market pain is still coming. Again a small offering was met with a lack of confidence (read lack of orders) from buyers and their processor customers; this resulted in the market reaching its lowest point since December 2017.

The Eastern Market Indicator (EMI) shaved off nearly 3% to close the week at 1715¢/kg clean. A higher Australian dollar limited the market falls in US$ terms with the US$ EMI only easing 1.5%. The improving Australian dollar value seemingly adding to offshore buyer disinterest in our wool this week despite the relatively low offering.

AWEX report that the EMI has lost 172 cents in June; this has only been surpassed in March 1991 when the Reserve Price Scheme was abolished. In percentage terms, the EMI has retreated 9.1%, the largest fall since August 2012.

29,167 bales were offered at Sydney, Melbourne & Fremantle, almost 10,000 more than last week with W.A. back in the market. The pass in rate across the selling centres jumped to 20.0% for the week, well up on last week’s 12.8%. Fremantle passed in 1 in 3 bales offered, this meant that 23,332 bales were cleared to the trade, 6,500 fewer than the corresponding week last year.

Crossbreds also recorded falls, although not to the full extent as the Merino section, losses of 30 to 50 cents was common.

This week marked the final trading session for the 2018/19 season and an assessment of the offering during this season shows that bales offered have declined nearly 12% on the volumes offered during the 2017/18 selling season. A falling market on reduced supply can only signal one thing, weaker demand.

Certainly reports from wool exporters suggest the ongoing trade issues between China and the US have impacted consumer sentiment within the Chinese economy and have offshore wool buyers a bit spooked.

The week ahead

Next week a combined offering of just over 34,500 bales is rostered across all selling centres, with a further 35,000 the following week before the winter recess.

AWEX make the point that the first sale in the new financial year is usually a larger one with growers clearing wool held over, however the current roster is well down on the same period last year, where over 37,000 bales were acrtually sold in each of the first 2 sales.

Weekly Wool Forwards for week ending 21st June 2019

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Nine trades were dealt on the forwards market this week, most of them in 19 micron wool, a bit of a slap in the face after predicting quieter markets, but healthy for the forwards market.

Seven trades were dealt in 19 micron wool. One agreed for July at 2,025¢, two agreed for August at 1,985¢ and 2,045¢, quite a discrepancy of 60¢. One trade was dealt for September and agreed at 1,905¢ while two trades were agreed for October at 1,900¢ and 1,915¢.

Two trades were dealt in 21 micron wool, both for December. One agreed at 1,900¢ and the other at 1,920¢.

It’s hard to predict what might be ahead for the forward market as auction supply continues to dwindle. Furthermore, a falling auction market fosters doubt and hesitance among participants in the forward market and makes for thin and volatile trading.

Export substitution effect

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The percentage price spread premium between the Eastern States Trade Lamb Indicator (ESTLI) and the National Mutton Indicator (NMI) has been narrowing in recent months. It is not unusual to see this occur during the middle of the season. However, the Mecardo team were wondering how much of an impact the price differential has on Australia’s export volumes of lamb and mutton. Is there any substitution effect at play as the relative price of the two sheep meat exports varies?

The percentage price spread premium between the ESTLI and NMI has been broadly following its normal seasonal pattern of narrowing throughout the first half of the year, drifting from a high of 43% in January to a low of 28% over April (Figure 1).

As the seasonal pattern demonstrates, it is not uncommon to see the spread premium at its narrowest during winter and it can dip towards the 20-25% spread region. Conversely, peaks toward 50-55% are achievable at the start and end of the season.

We have noted that occasionally month to month export flows to countries like China, that takes both lamb and mutton from Australia, show some signs of substitution. Export trade figures from April to May show that for China lamb volumes increased 10.6% while mutton exports declined 31%.

Indeed, across all trade destinations for the April to May period the total volume of lamb exports increased by 1,999 tonnes swt while mutton exports declined by 2,291 tonnes swt. It begged the question – Is there a relationship between the price differential between lamb and mutton and relative trade volumes?

Analysis of the 12-month rolling average of the percentage spread premium and the export ratio between lamb and mutton volumes shows there is a link. Since 2004, when the percentage spread premium exceeded 50%, lamb export volumes could not get beyond 50% more than mutton export volumes. Similarly, when the percentage spread premium dipped below 30% lamb export volumes expanded to close to double mutton export volumes (Figure 2).

What does it mean?

Monthly correlation analysis between the percentage spread premium and export ratio shows a moderately strong inverse relationship between the two data series, with an R2 of 0.5555 (Figure 3). When the price spread is high, signalling relatively expensive lamb, the trade flows favour mutton and in relative terms, lamb exports weaken. Conversely, when the spread is lower (relatively cheaper lamb) the trade flows favour lamb and lamb export volumes are relatively higher.

Given the low flock numbers presently and historically high prices encouraging increased production/flock rebuilding as soon as climatic conditions allow, there is a reasonable chance that we will see price spreads between the ESTLI and NMI remain toward the lower end of the normal range in the coming seasons. This will be particularly evident when the flock rebuild is able to get underway in earnest and it provides a promising outlook for lamb exporters and producers with lambs that meet the export specifications as the trade flows will favour lamb.

Key points:

  • The percentage price spread premium between the ESTLI and NMI has narrowed from January to June, broadly following the normal seasonal trend.
  • Historic trends show that when the percentage price spread premium dips below 30% trade flows favour lamb and when the spread extends above 50% they favour mutton.
  • Correlation analysis on a monthly basis confirms a moderately strong relationship between price spreads and trade flows.

Is this the bottom?

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While the market again suffered a significant fall, the AWI commentary on the market noted that almost all of the damage occurred on day one of selling, with a more measured response from exporters on Thursday.

Since the peak of March, in four months the EMI has lost 261 cents, or 14%; while in US$ terms it has fallen 233 cents or 16%. Bales sold is also down, 84,500 or 15% less than over the corresponding period.

The Eastern Market Indicator (EMI) fell back a further 57 cents this week on top of the 41 cents fall of last week and closed at 1,766 cents. The Au$ was also weaker slipping below US $0.69 mark and as a result, the EMI in US$ terms fell 42 cents, ending the week at 1,218 US cents (Table 1).

The AWI market commentator lists exporter finance issues, trade & tarrif wars and Brexit as all factors impacting negatively on the market over the past four months.

On the positive side, the EMI has not been as low in US$ terms since October 2017, so for the processors who have stood back from the market the price now should be more attractive.

 Supply is well back, both in seasonal and year-on year comparisons causing exporters to run down inventories; so along with the fact that over the next 2 months Australia is the only market with any volume, if there is any move to replace stocks we will see stronger demand. These are all factors leading to the suggestion that we may see the market find support at these levels.

Only 19,072 bales were offered at Sydney & Melbourne, 9,068 fewer than last week with Fremantle again not participating. The pass in rate across the selling centres was 12.8% for the week, Although well down on last week’s 21.3% the low offering meant that 16,634 bales were cleared to the trade, 4,270 fewer than the corresponding week last year.

We looked back to 2015 and could not find a lower week of wool bale clearance, this could well be the lowest for 50 years or more!  In the auction weeks since the winter recess, 1,390,315 bales have been cleared to the trade, 278,830 fewer than the same period last year.

The dollar value for the week was $30.38 million, for a combined value so far this season of $3.150 billion.

The week ahead

Next week a combined offering of just over 30,800 bales is rostered across all selling centres. For the following weeks 35,200 and 35,500 bales are currently forecast.

It cannot be ignored that the wool market is weak. If we compare when the market was at 1750 cents in early 2018, the outlook is far less optimistic despite lower supply. Back then the thought was “the market can only go up”. 16 months later after running through 2,000 cents we are back where we started at 1766 cents, but with a far less optimistic outlook.

Winter tightening pushes prices northward… in the East

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Declining sale yard throughput and slaughter levels for lamb and sheep markets are making their presence felt on price movements this week. Across the national market indicators prices were up for all categories of stock except for mutton.

East coast lamb markets leading the charge higher with reports of heavy lambs in Wagga fetching record prices of over $350 a head. The Eastern States Trade Lamb Indicator (ESTLI) reflecting the buoyancy across the eastern markets with a 42¢ gain to close yesterday at 885¢/kg cwt.

The National Trade Lamb Indicator (NTLI) climbing too, although not as robustly as the ESTLI, posting a gain of 22¢ to hit 874¢ – Figure 1. West Australian lamb markets dragging on the national lamb indicator figures with all reported lamb categories in the west posting falls between 40¢-110¢. The West Australian Trade Lamb Indicator (WATLI) off 65¢ to finish yesterday at 815¢.

East coast lamb yarding levels have taken a 34% dive in recent weeks to see it trending below the five-year seasonal pattern for the first time since April – Figure 2. Last season we saw a dip toward 120,000 head for east coast lamb yardings during late June, so we may not be out of the woods yet for the tight winter conditions.

Lamb slaughter levels in the east are reflecting the tight conditions too with the most recent figures dipping below the normal seasonal range to record the second lowest weekly figure since the start of 2019 at a whisker under 266,000 head – Figure 3. Bearing in mind that the lowest weekly figure this year was during the Easter/ANZAC shortened trading week for meat processors it’s a sign that margins are likely tight, at least for sheep and lamb processing lines.

What does it mean/next week?

The weekly rainfall forecast points to some decent falls scheduled for the west, up to 100mm for some south west coastal regions which could relieve the recent price pressure experienced in WA.

Across much of the rest of the sheep rearing regions across the nation there isn’t much rain on the horizon to support prices so producers will have to rely on the tight winter supply to keep some price buoyancy present.

Hopefully the live sheep export hiatus currently underway won’t continue to act as a drag on WA prices throughout the remainder of Winter.

Weekly Wool Forwards for week ending 21st June 2019

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A quiet week in the forwards market with only two trades, reflecting the falling auction markets of recent weeks.

One trade was dealt in 19 micron wool for August and agreed at 2,050¢  One trade was dealt in 28 micron wool for August and agreed at 1,040¢.

It’s been a few weeks since we’ve seen the forwards market this reserved but it is to be expected in a falling auction market. Growers don’t generally lower their prices to suit a weak market, but hold for when it will eventually rise again. Until then, as prices fall in search for a base and the outlook looks less optimistic as explained earlier, we will likely see quieter forwards for some time.

WA lamb catch the east

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WA lamb producers have joined the party, with their lambs almost the same price as those on the east. For the east coast, it was either steady or lower for most sheep and lamb indicators.

Trade Lamb prices retreated further this week, but mutton managed to hold on. Some confidence seems to have come out of the restocker and feeder lamb market, but heavy lambs moved to a higher premium.

Of the eastern states indicators, it was only the Eastern States Trade Lamb Indicator (ESTLI) and the Restocker indicator which lost ground. Light lambs were already relatively cheap.

The last fortnight has seen the only real check in the rising market (Figure 1). The ESTLI has lost 44¢, mainly due to weakening prices in Victoria and South Australia. The price fall is a little reminiscent of the check the market had in August last year, before it went on to set new highs. We know supply is going to get tighter, the question might be whether processors are better off closing for a period, or to keep on killing.

Restocker lambs have also eased from highs, but have taken it a bit further. While 800¢ is still a great price for lambs, it’s not 900¢. Not surprisingly, the hardest lambs to produce are priced the highest.  Heavy lambs held steady this week, the east coast indicator at 885¢/kg cwt.

Mutton has managed to hold its ground, suggesting it might be the smallest loser for processors at the moment (Figure 2).

In an indication that the export market is coming to terms with lamb prices over 800¢, WA markets have caught up to those on the east coast. The WA Trade Lamb Indicator hit a new high of 862¢ this week, a lazy 310¢ above the same time last year.

Next week?:

We need to remember it is still only June, and while sheep and lamb supplies are tighter, they are nowhere near winter lows.  As such prices should find a base soon, and possibly take another leg higher.

There doesn’t appear to be a lot of downside for sheep and lamb markets, with lambs likely to hit the market as they come ready, but supply won’t be enough to see it fall too far.