End of season wool sales delivers solid result | Elders

End of season wool sales delivers solid 1522c result


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STRONG SALES: The wool market closed down just 2c on 1522c as it heads into a three week recess.

STRONG SALES: The wool market closed down just 2c on 1522c as it heads into a three week recess.

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The ongoing strong Australian wool market closed down just 2c on 1522c as it heads into a three week recess.

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THE final selling week prior to a three week recess for wool auctions in Australia saw a very solid result. An extremely strong Australian dollar didn’t help the cause, nor did a general lack-lustre demand scenario in most overseas markets.

However, a wide spread of buyers were active throughout the week with no single player dominating, as was often the case in years gone by, where some Japanese firms would seek to hold up the market on their own. No single player bought more than 12 per cent of the offering on either day of the auction and the top 10 buyers represented different geographic locations and markets, illustrating good diversity of consumption for Australia’s woolclip.

In the final wash-up the AWEX’s eastern market indicator closed down 2c on 1522c in local terms, but up by US15c to US1173c. The Australian dollar rose strongly against the weakening US currency, and after starting the week at US76c the Aussie bounced to US77.3c on the back of changing sentiment across the globe.

Wool buyers were forced to adjust their limits rather quickly during the sale week or simply grin and bear it given that there will be no chance to purchase more wool for the next three weeks. Superfine Merino continued to drift downwards in the main, however any lots that showed good specifications were keenly sought after, in perhaps a sign of things to come for the new season.

Medium Merino types, unless they were full of VM or other fault, were buoyant and the 21-MPG closed well above the 1500c level. In US dollar terms the 21-MPG is also just above the key level of US1150c, with the closing quote for 21-micron fleece now at US1181c/kg.

AWEX’s northern market indicator closed down 5c on 1588c. The 17 micron indicator closed on 2196c, 18 micron 2108c, 19 micron 1824c, 20 micron 1607c, 21 micron 1530c, 22 micron 1477c, 28 micron 766c, and 30 micron 560c.

On the charts the 21-micron indicator looks very comfortable, still trending upwards slowly and steadily. In contrast to the superfine types the rise of the 21-MPG, which began in with a recovery post GFC in 2008, particularly in the past two years has been defined with a very gradual – hopefully very sustainable – rise. Competing fibres such as cotton and synthetics are struggling to follow, and may in fact place a drag on the wool prices, but a slow and steady rise as we are currently seeing, is much more sustainable than a boom scenario that is usually followed by the inevitable bust.

Of course external factors can upset the most predictable charting pattern, but assuming nothing dramatic happens from a textile point of view the biggest risk to Australian growers at present would appear to be on the currency front. The value of the US dollar has increased significantly since the last presidential election on the back of expected tax relief and pro-industry policies in the US.

The current ructions in the White House have the potential to unwind much of this value depending on how things play out over there in the next few weeks, and where the currency rates will sit when wool auctions resume in Mid August is anyone’s guess. With most of the world’s Central Banks – Australia excepted – now looking to raise rates rather than lower them, the interest rate differential should be working in favour of keeping the Australian dollar lower.

However, currency markets have a habit of moving against the logical trend as we saw with the Canadian dollar – commonly referred to as the ‘Looney’ – this week. The Bank of Canada hiked rates this week, which was largely expected given Canada’s solid data of late. Nevertheless it caused a big move in the value of the Looney as traders were positioned for a “buy the rumour, sell the fact” type scenario according to Andrew Haynes of HSBC. The US dollar/Canadian dollar fell more than 200 points on the news, when logic would suggest the move should have been the other way.

So while there are plenty of challenges for the exporters who need to juggle their currency positions as they sell greasy wool in US dollars or Euros, growers can do little but sit and watch the currency go where it will. The fundamentals of supply and demand still appear favourable, and it is a long time since we closed the season in such a good position with little if any fall expected into the spring. The volume of supply will dictate the price level we achieve during the usual spring flush. But with low grower stocks at present, and most growers in a strong position to be able to resist decreasing prices it would not be surprising to see prices hold around current levels for better style wools when auctions resume.

Superfine: In past weeks, although traditionally a period of very low demand for superfine, the best quality lots have been very well supported. At these price levels buyers and processors are obviously very quality conscious as they should be, and growers who produce the goods are being rewarded. There is also some further incentive for ultrafine growers at present with a forward contract being offered for NM 15-16.5 micron fleece wool, which is currently paying a premium of 300 cents/kg above market. With most of the price increase this season being constrained to the 17-18 micron range, this represents a great opportunity for the finer end to cash in. More details from your local Elders wool rep.

Medium Merino: With a resurgence of fake fur products keeping some Chinese processors busy, and uniform orders keeping other mills turning, it would seem unlikely that we will see a build-up of early stage stock in the current ‘off-season’. Providing the resumption of sales does not swamp the market with new wool we should see a quick settling down for prices after the usual ‘argybargy’ of the first week back.

Crossbreds: Some signs of life are beginning to emerge as the stocks are reduced, and fake fur producers use the finer edge of the crossbred clip. Again supply levels in the early spring will be the key, and quality of preparation is likely to play a key role as well.

Bruce McLeish is Elders northern wool manager.

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