Wool values hold 'more or less' firm this week

The effect on the wool market was immediate and saw 20-30 cents wiped off most of the major categories. In USD terms, prices were relatively unchanged with the EMI losing a solitary cent over the week.

In AUD terms some of the superfine categories held up reasonably well, but all other merino fleece types adjusted by a similar amount of 30-40 cents. Skirting types for the second week running found stronger demand as the traditional knitwear season hits full stride. Carding wools, for so long the hot item in the market are now just performing normally and coming back to a more realistic level compared to fleece wools. Crossbred wools in percentage terms declined to a similar degree to the main merino categories.

Growers in Australia have been the beneficiaries of the exchange rate movement in the past few months, with increasing local prices driven in large part by a falling local currency. Historically wool price trends have been driven or at least analysed in AUD, but at present, and perhaps in the future it will be more prudent to look at wool price trends in USD, much as is already done for the cotton and grains market. It does add a level of complexity for the Australian grower, or more risk in trying to predict currency movements, but looking at wool prices in a customer’s buying currency does make some sense.

On a USD chart the 21–micron wool price has been following the distinct seasonal pattern and steadily rising from October 2015 until now. Over the period it has risen by a modest 140 cents and certainly more palatable than 2014/15 when it climbed by nearly three dollars in four months. At the moment wool prices are “okay” for most users of wool, particularly those who are marketing a premium product. 

There will always be some for whom price is an issue, such as those in the school uniform market where parent’s budgets are constantly under pressure, and these markets are trending towards more and more polyester. However in the premium sector – which is the future of wool – today’s price is reasonable and the rise over the last few months definitely manageable. A further steady rise through until the end of May to meet current season demand will not alarm the processing sector, but unfortunately growers in Australia must deal with the currency movements as they occur.

Wheat growers know this only too well, with the local price at farm gate being determined by international factors, plus the currency effect. 

Since January 15 when the Aussie dollar was trading at .6824, we have added a full 10 cents or 14.7 per cent to the value. This equates to just under $2/kg for the wool price of today – yet another reason to use the forward market products that are available and sell when conditions are right, not when the wool is in the bale.

Aside from the currency issues, other economic signals around the world remain relatively positive and indicate a global recovery underway, albeit slowly. In Germany, the mood among analysts and investors rose for the second consecutive month. Positive signs from China, together with increased domestic spending by the government kept the wheels turning in the right direction.

German textile production is following suit, with some spinners being forced to seek extra commission processing space in order to fulfil current orders. This factor along with many other similar scenarios around the world bode well as the processing season winds to a close in late June. Apart from the unnecessary spike in the market during the IWTO conference the wool market has been ticking along nicely (in USD terms) and the balance between supply and demand just leaning in favour of a rising price. 

A slight increase in the premium or basis this week was welcome, but not much more activity expected at this time of the year. When the season for superfine ramps up again in July/August we would hope that seasonal conditions have improved enough to restore supply back around normal levels and we can see a further increase in the premiums.

Some trading activity in China during the week provided a bit of support at the auction here in Australia. The mood in China remains cautiously optimistic, so prices for Merino fleece will hold or get a little higher in USD terms, but do not expect a big rally to occur.

As mentioned previously stock levels are reasonably high, demand is flat, so it is a matter of waiting for a few months for the situation to run its course and for prices to improve.