Lower dollar lifts wool prices

Following the RBA decision to lower interest rates, significant falls in global commodity prices such as iron ore plus a rebound in the strength of the US dollar, the Aussie lost more than 3 per cent which has seen it trading to the mid .73 range by week’s end after having been as high as .7700 on Tuesday last week.

Although the wool market is just edging up slightly in USD terms, the better style Merino fleece categories all made gains of 30 cents and up to 60 cents in some cases for the week when reported in local currency. Lower VM fleece wools continue to be sought after at the expense of the higher VM lots in order to fill Chinese indent orders, leading to an increase in the gap between these wool types.

Skirtings are correctly following their fleece counterparts and rose by 40 cents for the week. Cardings appear to have bottomed out for now and rose by 20 cents, while crossbred wools managed a meek 10 cent increase. The forward roster for the next three weeks shows an average of 34,000 bales each week should be available for buyers to select from. While it seems adequate from first glance, it is considerably lower than the number actually sold during the same three-week period last year where buyers purchased 41,500 bales each week.

So, although downstream orders are not frenetic and yarn or fabric buyers are still taking careful consideration over their late season purchasing it is unlikely that the market will ease over this period, simply because there is not enough quantity for that to occur. At least that is the story in USD terms anyway, and so the sellers here in Australia will continue to be at the mercy of the currency markets for a little while longer yet.

As Garry Booth from Southern Aurora Wool pointed out, the ‘experts’ are divided about the likely direction of the Australian dollar in coming weeks or months with one analyst this week predicting a likely range of .7800 to .8000 and another on practically the same day having a target of 73.5 to 74 cents. So for woolgrowers who are less well researched and resourced in the dark art of currency prediction, the basic advice would be to simply sell as quickly as possible at current spot or forward levels rather than holding out for the elusive target of perhaps 1400 cents for the 21 MPG, or 1350 as a forward level in the spring.

The Australian dollar remains the most highly traded currency unit compared to its size, and as witnessed this week, when all the bulls become bears and reverse their long position the movements are large. Similarly, if those same traders at some point decide to get long again, the Aussie could well shoot back higher than it previously was and the wool market yo-yo continues. From a fundamental point of view, or on a USD chart the wool market looks sound.

On both the key 19.5 and 21.0 fleece types the uptrend in price from last September is clear and solid. Seasonal demand factors will ease some of the price pressure in the next three months, while lack of supply will prevent it from going into free-fall during the off-season.

The outlook for 2016/17 is positive with some of the new innovations being created at the fashion end of the industry and the fact that last year’s hot item – double-faced fabric is still sought after, despite early calls of its demise. It was a reaffirmation of quality control, with poorer quality fabrics being ignored, but high quality fabric is still finding strong demand. This basic principle will hopefully become entrenched across more sectors and end uses for wool in order to weed out the poorer textile exponents, and those who seek to use poorer wools that detract from the customer’s experience.

Early shearing in some parts of the New England will provide a challenge for some overseas processors who would not normally expect to see fresh wool supplies until August. However dry conditions and eight-month shearing will bring about this change. Rain will be a major determinant of superfine price premiums in the next year as only reasonable conditions will reduce the supply of hunger fine wools coming onto the market, which remains oversupplied at present.

While the processors in China are experiencing some price fluctuations as exporters manage their books, the consensus remains that prices for Merino fleece wools will not ease in the short term, but neither are they forecasting much potential for any upside movement either. If the market were to suddenly rise, like we saw in April many processors will presumably sit back and wait for a week or two, like they did in April.

Lower supply in coming months will probably prevent the crossbred wools from falling much further, but an increase in price seems a long way off at present.