Finally the currency pendulum swung in favour of Australian woolgrowers and prices rebounded at local auctions this week. With the local currency easing against the USD as a result of lower CPI numbers, prices were flat in USD, but managed a significant reversal of fortunes for local sellers with a 24-cent increase in the AWEX EMI recorded.
The quality of the offering is deteriorating in processing terms with a distinct lack of FNF or low VM wool available and this is presenting some challenges for buyers. While some processors have the capacity to process high VM fleece wools, many do not and this increases competition on the remaining low VM lots. As such the medium merino categories jumped by up to 50 cents this week, as did the better superfine wools.
Skirting types were similarly affected with lower VM lots being well supported, while the pieces and bellies containing more wood struggled. Carding wools followed a similar trend meaning that the overall carding indicator finished flat.
Crossbred wools continued to ease in USD terms, and so the lower AUD saw these wools more or less unchanged for the week in grower returns.
With AWEX reporting that more than 50 per cent of the offering of merino fleece wools contained in excess of 1pc VM, the relatively meagre forward roster of between 35 and 38,000 bales will make many buyers sit up and think.
Those processors who have developed the capability to process higher VM wools will undoubtedly have a good selection to work with and enjoy the fruits of their technological developments.
This together with an expected late break in the season across much of Australia that will lead to a higher proportion of high mid break wools in the spring catalogues will make topmaking a more difficult profession during 2016. Of course the largest factor in the market in coming weeks will be the exchange rate and already by week’s end the AUD has crept above the 76 handle again.
But volatility is certain to be the order of the day with the RBA meeting next week being just one of the critical events that will shape the outcome for the Australian dollar, and by default woolgrower returns in the short term.
At present currency speculators have built a huge long position in the Australian currency with ANZ reporting that the net long position of around USD3.4 billion worth of AUD being the highest level of net longs since September 2014 – when the last major decline in the value of the dollar began.
It in itself is not a guarantee of a turnaround in the value of the Australian dollar, but indicates how bullish investors have become about the currency and importantly provides the basis for extreme volatility in the event of an unexpected monetary policy move by the RBA or the Fed Reserve in coming weeks.
Glenn Stevens and his mates at the RBA rarely surprise the market by making an unexpected move, however the market itself has swiftly changed the expectation of a rate adjustment at the RBA’s May meeting from near zero to around 60pc in favour of a cut in a matter of days this week.
On the other side of the currency pair things in the US appear more stable and predictable for a change. The recent Fed Reserve statement indicated that while they are not looking to increase rates over there just yet, they remain positive about the domestic economy and are less worried about the world economy.
The longer-term picture for wool remains sound, without being overly exuberant. Processors around the world are still active and therefore creating demand at auction, but selling new orders of greasy, top or yarn to an existing customer is still proving to be a long drawn out affair.
Superfine Wool
Growers and processors will be closely watching seasonal conditions in eastern Australia in coming weeks as a late start, or lack of moisture will determine to a large degree the volume and quality of the superfine clip in the coming season. Fingers crossed for decent rainfall to prevent excessive volumes of lower quality wools coming onto the market in spring.
Medium Merino
On the technical charts the medium Merino category looks fairly comfortable in USD terms, while in AUD the picture is less certain. As discussed for several weeks the story of wool prices seems to be far more easily explained in USD rather than the local currency, so in that light, the outlook for slowly rising prices in USD appears sound. That is, until the seasonal pattern reasserts itself around the end of May or early June, at which time if would be fair to assume a softening of prices will occur.
Crossbred Wool
Prices continue to drift lower awaiting a change in demand or supply, but nothing is appearing on the horizon at present.
