october 2016 cattle outlook and 101 cattle forwards
TRANSCRIPT
MLA cattle outlook and 101 cattle forwards20th October 2016
Presented by: Ben Thomas, MLA & Matt Dalgleish, Mecardo
Before we start
» Presentation is content rich – Charts and Figures.
» Charts will be used to show trends and tell a story don’t get too caught up on the details.
» Relevant information for strategic long-term decision making.
Ben ThomasManager, Market Information
Matt DalgleishSenior Market Analyst
Andrew WhitelawGrain Analyst & Manager, Business
Development
Mecardo – Cattle Market UpdateOctober 2016
Ben Thomas – Manager, Market Information
From dust to deluge
From one unprecedented level to another20
0120
0220
0320
04
2011
2012
2013
2014
2015
2016
2018
2019
2020
100000
110000
120000
130000
140000
150000
160000
170000
Source: MLA, rolling 12 month average eastern states cattle slaughter
Cattle herd - population changes2015-16 on 2012-13 percentage change
LegendMore than 41%
31 to 41%
21 to 30%
11 to 20%
1 to 10%
0
-1 to -10%
-11 to -20%
-21 to -30%
-31 to -41%
More than -41%
Shaded regions have greater than 20,000 head
2015-16 figures are MLA estimates based on ABS data
Percentage changes are from the national herd peak in 2012-13 (29.3 million head)
Note:
1,256,969
2,114,568781,200
161,0041,346,351
946,306
134,4012,676,644
550,6544
351,194479,409
852,221
704,392838,925127,640638,081555,381732,685115,243
453,066
406,609
227,629
329,814
57,301328,662
98,550291,121452,132
216,250
175,22520,675
28,00386,471
107,568693,162 588,446
152,641383,936
570,641
75,722869,220
362,425431,441
327,163818,357
1,094,022
Dashboard of 2016 production changes*
Adult c
attle
slaug
hter
Fem
ale sl
augh
ter
Carc
ase w
eights
-30-20-10
0
year-on-year 5 year
%
Source: ABS
* = January to July
Grainfed beef
Grassfed beef
-20-15-10-505
1015
year-on-year 5 year
%
• 10-year average grainfed proportion of production is 36.6%
• Exceeded that in wet years – with more grassfed cattle retained
• 2015/16 grainfed production was 39% - expectations for 2017 are slight reduction, to 38%, on the back of herd rebuild offset by high feeder cattle prices
Dashboard of 2016 production changes*
Source: ABS, MLA estimates* = change from 15/16 fiscal year
More US beef, pork and chicken to come
Source: September World Agriculture Supply Demand Estimates
Australia vs global beef exports
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
200
700
1,200
1,700
2,200
2,700
3,200
Brazil Australia India US
‘000
tonn
es c
we
Source: OECD
Forecast
Beef to China region* from major exporters
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
050000
100000150000200000250000300000350000400000450000
USUruguayAustraliaIndiaNZBrazil
Source: Global Trade Atlas, quarterly basis*=Direct shipments from each respective country to aggregated China, Vietnam and Hong Kong
Impact of all this on the market…
Restockers driving market more than ever
2010 2011 2012 2013 2014 2015 2016200
300
400
500
600
700
800
Feeder Processor Restocker
¢/kg
cw
t 5¢*17¢*22¢*
48¢*24¢*
10¢*
Source: MLAEYCI by buyer type, latest data includes up to 13 September 2016; *= Restocker premium over processor purchases
21¢*
US Imported 90CL vs Medium Cow*
1998 2003 2008 20130
100200300400500600700800
Medium CowCow Meat 90 CLDifference
¢/kg
Source: MLA, Steiner Consulting Group*= Medium cows are 400-520kg D3, national average across all NLRS reported saleyards
ConclusionsOn one hand:
• Tightest supply of cattle in 20 years
• Exceptional winter rainfall – set for abundant spring feed
• Restockers have entered the market in force
But on the other:
• Global beef prices have softened from the highs of 2014 and 2015
• US production and competition is on the rise
• Brazil continues to push more beef into China
• A$ strengthened in 2016
Disclaimer
Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept responsibility for the accuracy or completeness of the information or opinions contained in the publication. You should make your own enquiries before making decisions concerning your interests. MLA accepts no liability for any losses incurred if you rely solely on this publication.
Information contained in this publication is obtained from a variety of third party sources. To the best of MLA’s knowledge the information accurately depicts existing and likely future market demand. However, MLA has not verified all third party information, and forecasts and projections are imprecise and subject to a high degree of uncertainty.
MLA makes no representations and to the extent permitted by law excludes all warranties in relation to the information contained in this publication. MLA is not liable to you or to any third party for any losses, costs or expenses, including any direct, indirect, incidental, consequential, special or exemplary damages or lost profit, resulting from any use or misuse of the information contained in this publication.
Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept responsibility for the accuracy or completeness of the information or opinions contained in the publication. This information is not medical advice and you should consult a health professional before making any decisions concerning your interests
Mecardo Market View
Short term correction levels
EYCI – 90CL spread forecasts
EYCI longer term forecasts
EYCI long term forecasts
What are forward contracts & how do they work?
Overview of a forward contract
» Commitment to deliver a certain amount of a product within a certain time period.
» Settled through cash or physical delivery» Used to reduce price risk» Lock in price components in advance of
trading the physical product» Works in conjunction with trading the
physical product by locking in the overall price received for the product
Current forward products
» Direct forward contracts (tailored)» Auctions plus forward contracts
(tailored)» Riemann forward contracts
(standardised)
Riemann Cattle
» Cattle – cash settled against EYCI– 4,000 kg minimum contract with 1,000 kg
increments– Maturity dates are the second and fourth
Thursday of the first six months with maturity dates set against key saleyard selling days, and then every fourth Thursday per month for the next 18 months
– http://www.riemann.com.au/wp-content/uploads/2016/03/Riemann-Cattle.pdf
Why use a Riemann forward contract
» Helps to mitigate price risk» Licenced and regulated marketplace» Independent and transparent market for
buyers and sellers» Producers, processors and investors have
easy access to risk management tools» Participants not subject to margin
requirements
How does it differ from a physical delivery contract
» Not settled by physically delivering cattle to the buyer
» Cash settled against the EYCI» Therefore, at time of settlement the
difference in price of the EYCI must be paid by either the buyer or seller
Example
» The forward contract rate was locked in at 675c
» At maturity if the EYCI is at 660c the buyer must pay the seller the 15c difference
» OR» At maturity if the EYCI is at 680c
then the seller must pay the buyer the 5c difference
Example
• John is a cattle producer from Queensland• He is planning to sell 60 head of 500kg heavy
steers in Jan 2017
Example
• John is a cattle producer from Queensland• He is planning to sell 60 head of 500kg heavy
steers in Jan 2017
Pros and Cons
» Standardised product means increased participants
» Transparent prices » Broad based buyer/seller access» Cash settled» No physical delivery required
Pros and Cons
» Standardised product – not tailored to cattle type and exact date of sale
» Spread risk between EYCI and cattle type/location (no different to physical sales)
Q&A
Ben ThomasManager, Market Information
Matt DalgleishSenior Market Analyst
Andrew WhitelawGrain Analyst & Manager, Business
Development
More information
» Matt Dalgleish [email protected] , 0439 454 557» Andrew [email protected], 0457 054 169» Non-Mecardo subscribers will receive
one month of Mecardo premium access for free