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.
LAMB prices have the traditional ‘return from school holiday’ price dip. Whether it be holidays, long weekend or feed, in most years lamb prices will 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 South Australian Mallee involved a young stock agent quoting $7.80 pre-Xmas; however, the client was hard on wanting $8. 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 said at the last sale, young ewes, not in lamb and four weeks off-shears made $272. Expectations were about $230. 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 scanned in-lamb to the Merino ram ranged between $70-$120.
I had a chat with Craig Pellow at Ray White in Temora and we both agree that over this period you need a foot in a couple of camps. Forward contract a few lambsw 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.
I spoke to Rob Inglis, Elders Livestock production specialist at Wagga and his team is flat out in NSW, Victoria and South Australia 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 New Zealanders have been feed mapping for 30 years. Understanding what is in the paddock and how many kilograms 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.
This season nearly all processor supply chains are full with a two to 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, a very large work force, domestic and international contracts that are directly impacted by foreign exchange rates, and 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. The 24/7 livestock managers for processors and feedlots live and breathe keeping the trucks coming; whether by 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 who 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.
The flood tragedy in northern Australia has been very well reported in the media so I don’t need to add an opinion; however, here is some context for the southerners. Elders livestock sales manager, Cameron Wilson, in Brisbane, has a client in far north Queensland who told him the flood water was 1.8 metres above 1974 levels.
The rule of thumb is that there 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. The $3.10/kg liveweight steers came back to $2.80, with the best blacks still making $3.
Heifers have become a bit harder to place with some good buying opportunities presenting – $2.20 – $2.50/kg. Against trend; however, and on the back of an excellent feed season in South Australia’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 time for the New England area in New South Wales is April, yet season pressure has led to 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 the redirection of slaughter cattle to the south. This in turn softened southern saleyard demand for finished cattle across most heavy types. The Meat & Livestock Australia comparison calculators under Market reports and Prices are a very simple tool to show trends and comparisons.
Central Australia’s positive organic premium: Over the last 10 years some pastoral cattle producers from Alice Springs, and the Birdsville and Strzelecki tracks have turned the niche organic market into a cornerstone 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 80-85 percent clearances for Angus bulls and a 15-20pc reduction in prices. Poll Herefords have been 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.
One of the hardest things to do is buy sires in a dry time. In NSW in 2002, many producers 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, there were not enough bulls available and prices 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 4-6 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, and 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.