The final sale before the three-week winter recess saw a softening in the Australian wool market with adverse currency movements taking their toll. The EMI closed 9 cents lower, however those buyers calculating prices in USD saw a 5-cent jump and the market was also dearer in Chinese and European currencies.
Although the market finished softer the tone in the auction room was far from negative with last minute orders needing to be filled and the Fremantle market, which closed out the selling week remaining strong. Superfine types fared well with the high quality selection creating interest from European buyers. The 17-MPG has closed $1 higher than at the same point last year setting up the market for a strong start in the season ahead.
Medium merino wools softened by 25 cents but the 21-MPG still closed at 1470. With a gross return of around $1800 per bale for 21-micron fleece wool and meat prices looking strong most growers can comfortably plan for the coming year. Even carding wools have closed 50 cents higher than at the same point in 2015. Crossbred wools remain the only segment of the market not to have exceeded levels of last year.
Often as the market enters the recess there is a lack of trading and general nervousness about where the market could reopen, however given the hand to mouth operation of nearly all early stage processing mills and the ongoing talk about supply issues there is less conviction among the overseas trade about a large correction in August. There remains a degree of unsatisfied demand in the pipeline given that most spinners have for the past three or four months only purchased the bare minimum of raw material.
Once the European mills return from their annual holidays, many production managers will be asking what prompt stock is available. Some of these buyers have clearly misjudged the market, expecting wool prices to ease in June/July as normal, but in USD/Euro terms this has not been the case. Most segments of the market, with the exception of crossbreds have risen steadily since last October and this gradual rise has in the past been more sustainable than the dramatic leaps that often beset the wool market.
The slow and steady rise is less likely to create casualties along the way with inventory able to be repriced gradually and no big loss making orders being held that cannot be delivered. While there are a few manufacturers kicking themselves for not building some stock before now, there is no despair among the processing fraternity about having missed the boat entirely. Three weeks is a long time for a topmaker or spinner to maintain prices if they are not selling but most will be confident to hold current price levels while stocks remain low, and the general perception exists that restocking demand will support the first couple of sales in August.
By the time sales resume Europeans will be gearing up for another round of trade fairs and trying to ascertain the outlook for the 2017/18 season. Merino is moving more and more towards the luxury fibre niche where raw material price becomes less of an issue, however for the remaining segment of the industry still comparing wool prices with other textile fibres the recent increase in cotton would be interesting.
In the past week the price of cotton has increased by 14 per cent, and while some of this bounce may disappear, a recovery in prices appears here to stay. Similarly the price of synthetic fibres is trending up as major producers look to increase margins and rising oil prices lift the cost of base inputs.
It may be too much to expect for smooth sailing on the world economic front in the next six months, to allow the wool market to motor along its predicted path, but the kerfuffle over Brexit has quickly dissipated and the US looks to be on an even keel. No doubt other issues will emerge to muddy the waters but those who are concerned about such a situation have good opportunities to use the forward market to offset this uncertainty.
Superfine Merino: With the emergence of some superior wool in the market this week we got a glimpse of the European buyers’ intent and their activity was very positive on lots that met their criteria. It is normal for the micron premium to increase in early spring, driven largely by this European activity and the early indications are that we will again see higher premiums being paid for good quality superfine wool in coming months.
Medium Merino: Current levels a buck and a half above the same time last year is certainly good, but it is on the demand side that indications look all the more pleasing. Current low stocks, more and more new manufacturers using Merino in new and interesting ways and a growing consumer market all add up to a positive outlook.
Crossbred wool: After a price dip of some degree the merino segment will rise again and crossbreds will follow suit. While the basis to Merino will probably hold at around 50pc as Merino prices rise again later in the year so will crossbreds.
