CURRENCY again played a large role in the wool market during the past week. Although prices in US dollars rose by 22c on Wednesday, a drop in the value of the local currency meant that prices were able to rise further on Thursday without affecting the prices paid by buyers.
The final outcome was a very strong market locally with Merino fleece types gaining between 50c and 100c for the week, with AWEX’s eastern market indicator closing up 43c to close on 1544c. Buyers were particularly keen to secure lower VM (vegetable matter), better style lots but at the end of the day quantity became the biggest issue as the forward roster is showing less than 40,000 bales a week from here on.
Skirting types more or less followed the price trend of the fleece wools, except for those with excessive VM, or cot and colour problems. Crossbred wools moved begrudgingly upwards as did the carding sector even though demand for both segments is limited. At the close of play the AWEX’s eastern market indicator finished 43c higher on 1544c in local currency terms, and plus 22c for the week both in US dollar and Euro terms.
AWEX’s northern market indicator closed on 1639c, up 42c. The 17 micron indicator closed on 2382c, 18 micron 2251c, 19 micron 1967c, 20 micron 1660c, 21 micron 1540c, 22 micron 1454c, 28 micron 763c, and 30 micron 585c.
With prices for 21 micron now back above the 1500c level, and pushing towards the US1150c level the market will be looking for a reason to ease as many people around the globe struggle to conduct new business at these levels. However, the lack of supply in coming weeks is sure to keep the pressure on early stage production mills that need to feed their machinery.
From a technical perspective the market is banging up against the US dollar ceiling of resistance, having gone through the resistance clearly in local currency terms, so again currency will play a part in price direction in the next few days. Trying to predict where the currency markets will be in a day, or a week is nigh on impossible, which makes for nervous times in the case of the exporting fraternity.
This week the US dollar strengthened against most currencies on the back of the Federal Reserve doing nothing, but resolving to do more in the future. The US economy is doing okay, but not well enough for them to raise interest rates again just yet. The accompanying commentary from their monthly meeting suggests further interest rate hikes are still on the agenda and so the US dollar strength looks likely to continue for the short term.
With the upcoming presidential election in Paris over the weekend global politics and therefore currency/equity markets could be volatile, or alternatively it could be steady-as-she-goes depending on the reaction to the outcome.
Factors such as the French election, Donald Trump’s Twitter outbursts or planned meetings between global heavy weights aside, the wool market continues to roll along in a very healthy position. Demand has clearly been the driver for the market in 2017 and easily accounted for the increased supply to date. Optimism surrounding the new products being brought to market using Merino wool in less traditional ways, along with breaking down of some of the myths about wool’s less desirable features have helped to build and sustain these record, or near record price levels.
Sitting back and thinking that all is well is not an option however, and will definitely end in tears. Whilst the momentum is with the industry we do need to take steps to ensure we don’t fall backwards again. Compared to the other luxury fibre ‘similar’ to superfine Merino being cashmere, there is still a huge potential price increase to be achieved. Locking in current progress and guarding against a retracement takes many forms.
At the basic level growers can obviously forward sell a portion of their next clip to minimise the risk of being forced to accept lower prices than we are currently seeing and there seems to be a lot more discussion about this of late in the rural media. Guarding against complacency around quality control needs to be highlighted when times are good. Poorer style wools, cots, jowls and higher VM are well accounted for in the daily auction process and easily identified in the sampling procedures. The potential for more devastating contamination problems brought about by poor shearing shed protocols or simply the demise of Australia’s premium quality reputation are things that need to be reinforced, even when things appear to be going well.
Maintaining the current promotion of wool has perhaps never been more important. Excellent progress is being made by AWI through its various campaigns and the momentum needs to be consolidated to ensure that those areas where Merino is being replaced by cheaper alternatives are less than the volumes of new consumption being added. Allowing the price of wool to fall back into the acceptable price point for bulk consumption uniform and sweater business is a poor scenario for the long-term future.
Superfine: Although it would seem that the basis between superfine and medium has probably reached its peak unless the season is a disaster resulting in a huge increase in hunger fine Merino we should see healthy premiums in place for the next season as well.
Medium Merino: With prices again sitting at the top of the recent trading range, or just above now is the time to take advantage and lock away some future production. There will no doubt be another correction in coming weeks, followed by hopefully a recovery before the end of the season.
Crossbreds: More of the same for crossbred wools at present, but as time passes the stock in the pipeline is gradually being consumed, so we are getting closer to a more balanced situation.
