A SMALL offering of only 22,000 bales produced an as expected rise in Australian wool prices in the past week.
AWEX’s eastern market indicator (EMI) registered an increase of 27c to 1533c with every category contributing to the rise. Merino fleece from 17 through 22-micron indicators all gained by 20 to 40c over the selling week, and given the small volumes available buyers were unable to apply the usual discounts for the inferior wools.
Skirting wools followed the direction of the fleece wools and rose by a similar amount, although the market as a whole tended to flatten out towards the end of the final day of selling as prices encountered resistance in overseas markets.
Crossbred wools continue to improve in prices although the percentage increase was slightly less than that achieved by the Merino sector. Carding wools, with also the lowest volume of the year on offer increased by an average of 12c as local processors competed with exporters to secure supplies.
AWEX’s northern market indicator closed up 24c on 1599c. The 17 micron indicator closed on 2232c, 18 micron 2165c, 19 micron 1892, 20 micron 1672c, 21 micron 1583c, 22 micron 1518c, 28 micron 769c, and 30 micron 548c.
The market is performing exceptionally well given the time of year, no doubt in a large part due to the small global supply and low stocks in the pipeline. However, prices for the main processing types have now encountered some resistance from those further up the chain trying to sell greasy or wooltops to clients, particularly in China.
Processors in Europe are tending to accept the price for the small orders they still have to complete before they go on summer holidays, and the off-season is certainly foremost in their minds at present as England swelters under 32 deg C heat.
Early stage processors in China, with no such holiday season planned until October are instead relying on being able to move on goods quickly to maintain cash flow and current price levels are creating some red ink on balance sheets. Of course the usual factors of supply and demand exist and are driving the market, but demand is being constrained by the inability of early stage processors to on-sell their goods at current levels. Over time this will be resolved either by an adjustment in wooltop prices, or a decrease in greasy wool prices.
From a charting perspective the 21-MPG has potential to increase by a further 60c or so, but questions are being asked if the 21-MPG is still the driving force or leader of the market as it has been for the past few decades. The 21-micron segment is only the fourth largest category of the Australian woolclip at present and perhaps the overall market will follow the higher quantity segments of 19 or 20 microns, which are showing less potential to rise in the short term.
Still, growers marketing their clips at the present time are enjoying a 20 per cent increase compared to the same time last year and those selling forward for the spring are realising contract prices higher than ever seen before. Merino wool is enjoying a resurgence in price not seen for a long time. The recent spikes in price have
tended to be short lived in duration, but arguably this current increase will be more sustainable as it has been built more gradually on a good foundation of increased, diversified and sustainable demand. The previous spike in prices for wool was driven to a large degree by a massive increase in the price of cotton that had little or nothing to do with supply and demand factors. During 2011 the world cotton price surged on the back of exuberant futures trading, particularly by Chinese investors, many of whom had no real connection
to the actual cotton market, but simply saw cotton futures as a form of investment with low entry cost. When the inevitable happened and the bubble burst, many small investors were burnt on the way back down – leading to the Chinese government decision to create a stockpile of cotton that could be used to dampen such speculative actions in the future.
The current wool market has no such external factors driving it, but it has been built purely on the back of increased demand with new products being brought to market as well as a supply base that has been trending down over time. While many in the industry agree that supply has now stabilised, those in the industry trying to get a handle on short-term availability and supply are receiving mixed messages.
The fickle conditions Mother Nature is creating variable conditions across Australia and wool production will vary accordingly. While the exodus from wool growing has arguably ceased, given the profitability now, production per head or the number of sheep running on a given farm is still changing and will have an impact on supply in coming months.
In large parts of Western Australia growers are being forced to sell off older stock as feed supplies run out. Similarly in Queensland the situation is becoming less favourable and growers there are taking advantage of high sheep prices to lighten stocking rates. While in much of the NSW, Victoria and the pastoral regions of South Australia lambing percentages are excellent, feed conditions above normal and production is expected to surpass last year.
So with this week’s sale being the lowest for this time of year across the past eight years according to AWEX, and not a huge amount of wool in brokers stores awaiting the new financial year, processors are facing a supply constraint until at least Mid August. If the current greasy wool price ex bonded store in China and the spot price for wooltops can increase in the next couple of days the Australian auction prices may hold, but more likely we will see the current gap of 30 cents closed up by a reduction in Australian wool prices.
- Bruce McLeish is Elders’ northern wool manager.