A WEAKER Australian dollar, or more correctly a stronger US dollar, assisted the wool market during the past week to lift prices in local terms.
The eastern market indicator (EMI) managed a rise of 24c for the week, while prices eased in US terms by 6c. Prices in Euro were squarely in the middle of the other two currencies with a lift of 14c for those processors around the Mediterranean.
Superfine wools benefited most from the weaker currency and prices increased by up to 50c while most medium Merino fleece categories improved by 30 to 40c as well. Despite the reasonably large volume of wool on offer there was still plenty of demand from buyers for Merino fleece and this meant that discounts for faulty types remained very low compared to the previous season. Knitwear production is in full swing and skirting and carding types remain strong. Crossbred wools appear to have finally bottomed out, and with lower volumes in coming months prices should start to rise again for these wools, which have been sliding for a number of months.
The northern market indicator closed on 1359c, up 28c. The 17 micorn indicator closed on 1667c, 18 micron 1636c, 19 micron 1570c, 20 micron 1451c, 21 micron 1383c, 22 micron 1368c, 28 micron 668, and 30 micron 560c.
Demand at present is quite subdued, with most of the buying orders in the Australian market coming from topmakers in China just to fill machinery with one eye on the low greasy stocks in China, and other firmly focussed on the impending auction recess in four weeks time. The previous couple of months have seen good domestic orders in China for both uniform and fashion items, and this has pushed wool through the pipeline at a rapid pace. Consequently there is still very little stock in greasy, top or yarn form, so mills need to keep buying raw material in order to keep the machines rolling.
However, some concerns do exist at the lack of new orders coming forward from the retail end at present. The weather in China has certainly been relatively mild so far this autumn, which is not helping to move the large stocks of overcoat fabric and export orders from China to Europe or the US are also down a little on last year. The situation could quickly turn around given a decent burst of cold weather, or an uplift in confidence about the world economic situation and this would quickly be felt in the auction prices in Australia.
If neither of the above triggers come forward the wool market will probably just meander along until the recess in four weeks time following the direction set by the currency market – in which the US dollar is continuing to strengthen at present with a closing quote on Friday of US73.4c. Supply in January may be interesting for the wool market with very few growers at present seeming to hold wool back for sale in the New Year, as has so often been the case in previous years.
Sales in January 2017 may well be significantly smaller than usual for both Merino and crossbred wools. So if the demand situation does improve courtesy of the Christmas retail season and more orders are placed for the 2017-18 season the wool market could become quite heated. The small proportion of customers who are complaining about the relatively high price of wool in the current season will not welcome this. However, they remain in the minority, with many other sellers of Merino products being able to work with current price levels and who are focussed on presenting the benefits of this elite natural fibre to their customers rather than looking at comparative prices.
Global financial markets ended last week in a much better mood than almost anyone would have predicted in the wake of Donald Trump’s win the US presidential election. In some ways, with that uncertainty behind them, traders can simply focus on the expected Federal Reserve rate hike in December. The world has been expecting an increase in rates in the US since June when it was touted as a near certainty, so it cannot be locked in yet.
However, like Brexit, the dust has quickly settled in the US, with perhaps only a sour taste remaining for the various government departments and lobbyists that will have so much less influence in a future Trump administration. The media will no doubt continue to create sensationalist headlines, but they too may be marginalised in the new world order of US politics. Providing there are no train wrecks in the early stages of the new administration, and OPEC can actually put a stable agreement together we should see world economic conditions gradually improve in 2017.
Superfine: With the majority of the season’s superfine wool now sold, volumes available for the next 6 months will be lower as more medium wool is offered in catalogues. The basis of superfine merino compared to 21 micron look comfortable at present on its widening trend, and provided that European processors continue to provide support during the remaining superfine sales the potential upside for these types is considerable.
Medium Merino: While a favourable exchange rate will continue to provide increased returns for growers locally, the US dollar trend for medium merino is less clear. The futures market continues to show incredible stability for such a volatile product, and very few in the trade are willing to undersell current prices, but the key aspect of new demand now that Chinese uniform orders have been completed is the missing link.
Crossbreds: Again on the charts the 28 micron indicator looks to be at a support level, and providing that the merino market holds or increases from now, crossbred prices should rise initially by 30-40c and possibly more if all the ducks line up with the weather and global economic conditions.
- Bruce McLeish is Elders northern wool manager.