IT was an interesting week, to put it mildly with the wool market down, and then up and the world Trumped.
As CBA Ag Commodity writer Tobin Gorey said; currency, equity and commodity markets had a volatile day as the results of the US presidential election rolled in. The wool market was doing its own thing prior to the shock result and continuing the correction that had begun the previous week as higher volumes of greasy wool imbalanced the pendulum for indecisive buyers.
News filtered in during the day mostly after the sales for the day had been completed on Wednesday, so a higher currency, sluggish demand and reasonable volumes pruned 20c to 30c off most categories. However, once the turmoil started on the wires the local currency dived and it was Brexit fears all over again. Sanity returned on Thursday and even though there were some challenging volumes buyers were much more active and prices regained 10c to 15c of the previous day’s losses. At the end of the week the EMI would close down by only 13c in local currency terms, and lose US9c/kg.
The better Merino fleece types were less affected on the downswing, with lower quality wools bearing the brunt of the falls on Wednesday, but these types in general found favor on Thursday especially in the larger broker catalogues. A large volume of skirting types on offer allowed buyers to remain selective and the finer better quality low VM lots being the only ones to remain in positive territory by the end of the week.
Crossbred wools initially struggled as they have done in recent weeks, but did show some signs of bottoming out later in the week, and perhaps have reached a point where they will turn around. Carding wools struggled to reverse the easing trend, and although their fall on Thursday was less severe they still closed down slightly.
The northern market indicator closed down 17c on 1331c. The 17 micron indicator closed on 1626c, 18 on 1610c, 19 on 1530c, 20 on 1420c, 21 on 1366c, 22 on 1348c, 28 on 674c, and 30 on 555c.
While not immune from the events in the US, the wool market will quickly move on with the business of growing, exporting, processing and selling. Prices will be affected by the fundamentals of supply and demand – provided there are no major economic traumas created from the week’s events. The overseas trade is still a little puzzled about actual production levels in Australia and what that may mean for coming months given the AWTA production figures for October showed a year on year decline for the month.
However, the picture will become clearer as the monthly bumps are smoothed out, and the fact remains that apart from the recently passed in wools, there is very little stock held in Australia. There is perhaps even less being held in processing factories in China and so the pipeline is certainly empty.
An increase in demand would create a ripple effect along the whole pipeline in quick order, but not many are able to see where that will be coming from at the moment. Most processors are ‘ticking’ along producing what they need, buying raw materials as required and perhaps this will be the established pattern to follow for coming months. The previous surge of demand in China for firstly ‘fakefur’ fabric and then secondly the uniform business is winding down.
A huge quantity of wool was consumed in the fake fur product given its heavy weight fabric nature, but there is plenty of the finished fabric now made to satisfy even the most optimistic projections for the current season and possibly next. Uniform business in China tends to be cyclical, with the biggest volume coming every two or three years when all government departments are allocated new wardrobe collections. Again, this has pretty much been and gone for now with the majority of the fabric made.
Normal garments, suits and the like are still being ordered and made each week, but this demand is stable and unlikely to create a surge. The futures market concurs with this thinking as prices are trading virtually in a flat line for the next four months. So perhaps we will see a market consolidate at current levels and meander sideways for a sustained period of time. Current prices are pleasing and sustainable to the majority of wool industry participants, so it would not be a bad thing to roll along where we are and enjoy the tranquility without the volatility – but this is the wool market.
Other markets had perhaps an even more erratic week as the saga in the US unfolded and the pollsters looked for alternative careers. Few of the reactions persisted; many were more than reversed with financials and equities generally plummeting to a degree before recovering. Major commodities like iron ore shook off the effects in dramatic fashion and unexpectedly rose to be around the highest level in two years now.
A survey of economists or financial experts after the election still saw 82 per cent predicting that the Federal Reserve would be in a position to raise interest rates in December. Conciliation seems to be the general consensus in the aftermath of the election of Mr Trump and so if that continues to be maintained and fostered perhaps the world’s economic recovery will stay on track.
Superfine: Little deviation from the current path is expected.
Medium Merino: Stability of prices would also appear to be the most likely outcome or prediction for the coming weeks.
Crossbreds: Some are saying prices have reached the bottom and at this level new demand will be created.
- Bruce McLeish is Elders northern wool manager.