THE progress of the wool market was anything but slow this week with AWEX’s eastern market indicator up 64c to 1614c.
From the opening lot on Wednesday prices rose sharply and the market didn’t stop until it had climbed by nearly 50c. On Thursday when many expected the market to take a breather, particularly with the stronger currency, prices continued to move up and another 18c was added to the total. So at the end of the week the wool market had risen by 64c, with many individual Merino fleece categories notching up a century of gains.
Finer crossbreds rose by 70c to 80c, Merino skirtings added 40c while carding wools were remarkably unchanged for the week. Overall the market registered a rise of 4 per cent to go along with the 2pc last week but is dwarfed by the South African market, which returned to selling this week after a two month recess, and jumped by a massive 18pc.
On most measures we have eclipsed all Merino prices since 1989.
AWEX’s northern indicator closed up 65c on 1679. The 17 micron indicator closed on 2282c, 18 micron 2201c, 19 micron 1924c, 20 micron 1724c, 21 micron 1668c, 22 micron 1603, 26 micron 899c, and 28 micron 682c.
According to AWEX that makes the average bale of 17 micron wool worth $2731, 19 micron $2297, 21 micron $1979, 23 micron $1862, and 28 micron $1065.
Many people are now asking if this dramatic price rise can be sustained or if the wool industry will live up to its volatile reputation and fall just as quickly. As usual there are different schools of thought about what next week will bring. Looking back through the record books, on most measures we have eclipsed all Merino prices since 1989. In US dollar terms this week’s price is the highest since 2012, while the vagaries of the currency markets mean that for European customers the EMI was actually higher earlier this year.
So although we are seeing multi decade highs here in Australia, customers overseas have seen higher levels in more recent times – not to say that these price levels will not have a dampening effect on demand though. Some customers in particular market price sensitive segments are already talking about their customers being squeezed out of wool by this price increase.
However, while some ‘borderline’ apparel uses uniforms and the like will be feeling the pinch, the most damaging aspect of the market activity it the speed of the price increase. When a market jumps 6pc or more in two weeks people are bound to get caught on the wrong side and hurt financially, and the losses always seem bigger than the gains.
From a technical perspective there is potential for the market to rise another one US dollar before making a cyclical top, but this could take some months to play out, so doesn’t really provide much of an indication for the next couple of weeks. Although competing fibres such as cotton and polyester are not moving in the same direction as wool and therefore have the potential to drag wool prices back at some stage, supply of those alternative fibres is large and increasing at present. Wool supply, particularly good quality Merino fleece is tight at present, and the Australian Wool Production Forecasting Committee is not predicting any increase across Australia for the next 12 months.
Cotton farmers can respond to higher prices quite quickly by planting more area – water availability pending, and polyester production facilities simply turn on the tap in response to higher demand for that plastic rubbish. Merino wool may not in fact follow the lead of the big two fibres in the future as supply is constrained, although there will inevitably be some demand constriction at these price levels.
The Riemann forward market is highlighting the strength of the current market sentiment with early spring 21-micron futures trading at 1580c, and buyers are offering 1510c for early 2018 through to 1450c in June 2018. Quite remarkable given that growers and their advisors were satisfied with hedging 21-micron at what was a historical level of 1400c for the 2017 spring, not very long ago.
Given the increasing murmuring from some sections of the trade about unsustainable prices, hedging a month forward at 100c under current prices may yet prove to be an astute move. But in a contradictory sentiment closing auction prices across all three selling centres are within a few cents of each other for every MPG from 18 to 22 micron, which is normally a sign of strength for the coming week.
There has rarely been a market situation that attracted more attention than the current environment. Some Europeans have reportedly returned early from holidays to see what is going on, and some Chinese early stage processors report good follow-on enquiry. Fake fur for the Chinese domestic market is still the main driver for consumption of 19.5 to 26.8 micron fleece types, and nearly everyone seems to be processing for that purpose at the moment. Not all of Australia’s wool is being used for this single purpose, despite all the gossip among the trade about it, with European firms beginning to flex their muscles on the better superfine types this week. Some of these lots were reported to be close to $2 dearer. So, the nerves continue for some, while others are gleefully processing as fast as they can, and many growers flat out harvesting the white gold.