Markets

Chris Howie’s wrap on southern market trends and opportunities

Chris Howie, February 28, 2019

 

Chris Howie from Agri Careers and Consultancy offers his take on southern livestock market trends in February, drawing from both his own observations and from a wide contact network of producers, agents, processors, industry associates and leaders developed during his extensive career as a livestock agent and former Elders national livestock manager.

Cattle

The tragedy in the north has been very well reported in the media so I don’t need to add an opinion however some context for the southerners.

Elders Livestock sales manager, Brisbane, Cameron Wilson has a client in Far North Queensland who told him the water was 1.8 meters above 1974 levels.

Rule of thumb is about a four to six week time lag between northern and southern cattle price movements. As the first run of weaner sales finished in January we saw the momentum continue for about two weeks then the Victorian weaner prices began to soften as the market corrected with several large orders filling. $3.10 steers coming back to $2.80 with best blacks still making $3.

Heifers have become a bit harder to place with some good buying opportunities presenting – $2.20 – $2.50. Against trend however and on the back of an excellent feed season in SA’s Lower South East the Naracoorte and Mt Gambier weaners held value right through with heifers just starting to soften early February. The normal sell off for the New England in NSW is April yet season pressure has seen many calves being offered in February and cow numbers rising rapidly.

The Queensland rain stopped access to some works in the North and we saw a redirect of slaughter cattle south. This in turn softened Southern saleyard demand for finished cattle across most heavy types. The MLA comparison calculators under Market reports and Prices are a very simple tool to show trends and comparisons.

Organic dividends in Central Australia: Over the last 10 years some pastoral cattle producers from Alice Springs, Birdsville and Strzelecki tracks have turned the niche organic market into a corner stone of their operations. It can be reasonably volatile but the market is moving in the right direction at this time with a very positive premium. One kill sheet produced a steer, 8 teeth over $3000. If some good can come from the northern rain the channel country floods will provide some feed for the properties along the Diamantina.

Southern bull selling season kicks into gear: The Southern bull season has kicked into gear with many studs presenting a great selection of bulls. Speaking to Gordon Wood from Landmark a general overview was Angus 80/85pc clearance and 15 – 20pc reduction in price. Poll Herefords a bit tighter again with the continued drought through the North. Euro sales have been tough with great opportunities presenting to purchase. The Elite studs in all breeds have held onto clearance and average prices when compared to last year.

The importance of buying bulls in dry times: One of the hardest things to do is buy sires in a dry time. In NSW in 2002 many did not buy bulls during that drought. This put considerable pressure on the stud breeder but also created a real issue for producers when the season turned. Everyone wanted bulls at the same time, not enough bulls available, price went up. But more importantly producers started to drop their selection criteria to secure numbers. This in turn impacted their herd quality which took several years to straighten up. It is worth the small feed investment to secure and look after some new sires that continue to deliver for your target market. Maybe leave spending $2.1 million on an Angus bull until you do have some good feed though.

Something to consider over next four months: If you look at your crystal ball over the next four months consider the following. If it stays dry slaughter cattle will need to come from somewhere. If it rains those with cattle still on hand will look to rebuild and put maximum weight into sale cattle. Again slaughter cattle will be in short supply. Feedlots will become very important in providing continuity of supply. Many feedlots are at capacity with a waiting list to obtain entry. Agents and producers who understand the drivers behind feedlot requirements during the next four to six months can leverage their existing relationships which will benefit all parties. Again understanding the required specification allows you to plan how to get your cattle into the slot. Trying to build a relationship with someone the day before the cattle are trucked rarely works and leaves you at the mercy of the spot market.

Look for the “best average”: As a producer, no different to a processor or feedlot, hedging your risk is very important. If you are looking for top price in the paper this will not mean much. However if your business is about money in the bank the “best average” is what you are looking for. Whether you produce feeder steers, lambs or ewes / heifers understanding what you can realistically achieve is very important. Measuring your productivity in kilograms produced will also improve how you do things and reduce input costs per kilo.

Sheep

Lamb prices took the traditional “return from school holiday price dip.” Whether it be holidays, long weekend or feed most years will see the price ease in the last week of January flowing into February. Look at the year-on-year market trend graphs. Each area is different but normally most areas are effected in a similar manner within a two to three week window. Over the last four weeks numbers of “slippery” sheep and lambs entered the market as the limited pasture feed and stubbles were exhausted. As happens most years this tends to see price continue to struggle until end of March. A huge amount of dry feed has been destroyed by heat and wind leaving many in the next stage of sell off.

Lambs that were forward contracted and supplementary fed are still bringing great returns with the producer being fully aware of what the end result is. One such story from the SA Mallee involved a young stock agent quoting $7.80 pre-Xmas however the client was hard on wanting $8.00.  After some animated discussion one load was locked in at $7.80. Result; Jan delivery, 26kg lambs @ $7.80 + skin returned over $220 per head. Comparing that return to current pricing it shows about +$1.60/kg difference.

Over the next four months we are going to see the true impact of the drought, lambing percentages and available quality. Ewes will be Queen as soon as it rains. Elders Whycheproof Kev Thompson’s last sale saw young ewes, not in lamb, four weeks off shears make $272. Expectations were $230 odd. Upgrading a flock is something that should happen when opportunity arises. Is it too much for those young ewes? Not if you just unloaded the heavy 5 year olds @$4/kg. As I said last article – fast on your feet, don’t get caught at the crease.

The monthly Jamestown sale yarded 30,000 last week. It was a tough day at the office for lighter, bare shorn Merino wether lambs. With a price range of $38 – $45 these are a great money spinner. Ewes SIL to merino ranged between $70 – $120.

Had a chat with Craig Pellow at Ray White, Temora we both agree that over this period you need a foot in a couple of camps. Forward contract a few to put the core in your average. Understand your feed and water situation because you need to get stock up to specification. Falling in a hole four weeks short of delivery window helps no one. Map when your livestock will be ready to sell. Don’t talk about July prices if your stock need to go in April.

Speaking to Rob Inglis, Elders Livestock production specialist, Wagga his team is flat out in NSW, Vic and SA pasture mapping and nutrition planning for producers. Every producer has a different set of needs – keeping breeders alive, early weaning, joining weights, getting livestock to contract specification or a mix of everything and more. The Kiwis have been feed mapping for 30 years. Understanding what is in the paddock and how many kilos of meat or milk can be produced is central to the NZ farming operations.  I think Australian producers need to put more time into understanding this key driver of productivity.

Looking forward

The season has nearly all processors supply chains full with a two–three week waiting time. I can see some of you asking why? It is relatively simple. If you put yourself in the shoes of a processor (sheep, lambs or cattle), they have a large outlay for a processing plant, very large work force, domestic and international contracts that are directly impacted by foreign exchange rates, competition from other processors as well as other countries. They cannot afford to have a day without livestock because these massive labour and infrastructure on-costs don’t go away. Using forward contracts they create a supply core that allows them to average their pricing as they get closer to any given day. 24/7 Livestock managers for processors / feedlots live and breathe keeping the trucks coming – agency or direct is rarely of concern but surety of supply is very important.

For processors it takes many years to build these trading relationships based on consistent supply, quality and most of all reputation and trust. All of these plus many more variables are joined at the hip with supply. Forward contracts provide a risk management tool for those that need continuity of numbers. If a producer views their business in the same manner the puzzle quickly starts to fall into place and what seemed an ongoing “when to sell” drama based on seasonal pressures becomes much easier to understand and adopt because the producer focus is on creating the right article for the contract..

Opportunities

  • Cows if you have the feed – aim for June – August turn off.
  • Plain heavier steers – only need to carry for one winter
  • Light heifers (straight colours) – run them like sheep and polish them up later
  • Lambs if you can feed them – contract a few but leave balance.
    • Ask questions about the new Lamb age guidelines.
  • Merino ewes – great money spinner. Shear and sell July – August
  • Plain merino wether lambs / hoggets with a bit of frame
    • Run them for wool then fatten in last 6 weeks before you sell them in July or carry through

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Comments

  1. Rob Inglis, March 1, 2019

    Practical and insightful, from one of the best in the business.
    Feed mapping includes fodder on hand and predicted pasture growth when it, and it will one day, rains.

  2. Steve Ridley, March 1, 2019

    Very commonsense report with plenty of information we can understand. You can’t beat years of experience and information from the people on the ground.
    You should be able to get money for this type of report.

  3. Eric Newsome, February 28, 2019

    It is not hard to feed map my place there is nothing there.

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