PROMINENT Australian livestock ship owner Wellard has hinted at relocating a vessel to service South American charters, saying traditional buyers of northern cattle are increasingly looking for other, cheaper, options.
The West Australian-based company has recorded a US$0.5 million profit in the first half of the 2022 financial year, turning around a US$1.6m loss in the prior corresponding period, the first half of financial year 2021.
Wellard has even progressed its feasibility study for the building of a new vessel.
It’s a solid achievement against a backdrop of record high prices for Australian cattle, red hot competition for charters given the very low supply and skyrocketing ship fuel costs.
The company attributes the result largely to the prudent decision to lock in a series of forward-dated charters. That effectively shielded Wellard from the very competitive commercial environment.
Wellard executive chairman John Klepec described the trading conditions in the live export business over the past six months as some of the toughest the industry has experienced.
There is little relief in sight, with forecasts from Meat & Livestock Australia indicating it will won’t be until at least the end of this year that cattle numbers improve to the degree that live export volumes can again start flowing at more typical rates.
Live cattle exports from Australia fell 27 per cent between the first half of the last financial year and this one.
On the flip side, the South America to Middle East/North Africa route is showing increased activity, and Wellard says that is a ‘development we are monitoring closely’.
In a statement released to the Australian Stock Exchange, the company said with live export cattle prices now above $5 a kilogram live-weight, Australian exporters were finding it very difficult to keep major Indonesian importers supplied.
Those prices are an all-time high and it has been widely reported purchasing at that level pushes Indonesian feedlots well into negative margins.
Wellard said inquiries the company was receiving indicated importers in traditional Australian live export markets – breeder and slaughter in particular – were increasingly looking to South America to supply cattle at considerably cheaper prices.
“As these are ultra-long voyages they also have the added advantage of removing a vessel out of the Australian market for two months per completed voyage, thereby improving the supply/demand dynamics at home,” the statement said.
Wellard’s vessel monitoring indicates increased trading between South America and the Middle East/North Africa. The company says the costs to relocate a vessel to this route are considerable and it has no immediate plans to do so. However, it noted sustained demand would help to remove the oversupply of livestock shipping capacity that existed in the last calendar year.
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Wellard says the outlook for the second half of this financial year is mixed with its larger MV Ocean Drover expected to be fully utilized but it’s medium-sized vessels currently at anchor.
The breeder cattle market to northern Asia for this year is expected to remain robust at similar levels to the previous two years, albeit with a change in the mix of sourcing, the company said. It will remain a very high proportion of Wellard’s ship chartering activities this year.
The financial results show bunkers, or ship fuel, was the company’s largest cost and rising prices impacted operating profit margins.
These prices started the period at US$550 a tonne ex-Singapore and in six months had risen to US$650. They are currently at $720/tonne. By comparison, they started the prior corresponding period at US$320 a tone.
Wellard’s statement said the pandemic continues to challenge operations with regulatory restrictions and logistics obstacles, requiring vessels to incur costly and time-consuming deviations to complete crew changes in ports outside trading routes.
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The story Wellard keeps its head above water first appeared on Farm Online.