Wool market stages Thursday recovery | Elders

Wool market stages Thursday recovery


A dip in the Australian dollar saw the Thursday advantage come into play in the wool market.

WOOL SALES: A dip in the Australian dollar saw the Thursday advantage come into play.

WOOL SALES: A dip in the Australian dollar saw the Thursday advantage come into play.

A BIT of downwards pressure initially during the past week led to quite a high pass-in rate, but then a dip in the Australian dollar saw the Thursday advantage come into play. Prices recovered nicely to close out the week with every meaningful category of wool across Australia rising at auction on Thursday.

It was always going to be a difficult selling week with a relatively large offering and buyers becoming a little concerned about how many orders remain unfulfilled at this late stage of the season. AWEX’s eastern market indicator finished down 11c overall in local currency terms and registered the same movement in US dollar terms with a 10c drop.

The superfine categories were positive movers for the week and generally closed 5 to 10c higher. The medium Merino types finished down 20c to 40c for the week but they had risen to fairly extreme levels, and the 21-MPG is now back within its ‘comfortable’ range between 1400c and 1500c at 1478c. Crossbred wools meandered along and closed in positive territory, while carding wools managed to close a few pennies higher.

AWEX’s northern market indicator closed down 11c on 1597c. The 17 micron indiccator closed on 2324c, 18 micron 2178c, 19 micron 1897c, 20 micron 1591c, 21 micron 1473c, 22 micron 1396c, 28 micron 738c, and 30 micron 579c.

Sales of greasy wool into China have slowed somewhat in recent days, and many scouring mills have plenty of greasy wool lined up to wash, which is a different scenario than we have seen for quite some time. Sales of wool top and yarn also have been difficult in the past couple of weeks perhaps in part due the spike in prices before Easter, but also due in large part to the calendar which tells us that the traditional end of season is fast approaching. There are definitely still some gaps in inventory along the pipeline with mills still needing to top up supplies to finish some orders prior to the northern summer holiday shut-down. But there is certainly not enough ‘new’ business around for early stage processors to load up their greasy wool supplies as they might be inclined to do if it was late December for example.

There is the odd rumour floating around about new Chinese government uniform orders that may (or may not) be released in July. This would provide a spike in demand at a time when supplies are very low, and many mills would be operating on reduced capacity. So this does present an interesting conundrum for those mills that may be able to participate, do they chase the rumour and keep buying, or wait for more confirmation and hope that supplies in May/June are sufficient for them to produce what they need to for this order. Uniform orders are often released with very little advance notice, and July would not be an unusual time. However, the rumour has built expectations up that this will be a sizable order and will therefore keep the industry chatter occupied for a while yet.

There is certainly plenty of blue sky and sunshine around the Merino industry at the moment. Currency is an unknown factor, as are some of the geopolitical hotspots around the globe at present, but the basics look pretty good. The fact that 21-micron forwards traded on the Riemann platform at spot for late May and late June on Friday underlines the fact that some business is being done around current levels at least for the next couple of months. Does that indicate that growers should sit back and not hedge because someone is buying at these levels – therefore they obviously know the market is going up? No. Hedging is about managing risk, not about someone winning and someone losing.

An exporter or topmaker already carries a huge amount of risk in their daily business, and most prudent operators will look to reduce their overall exposure when they can – they gamble, but do not want to bet the whole farm every day! So if they have a sale on the books that can be covered at a rate that is suitable they will take some cover to reduce their overall risk. Growers should approach hedging from the same perspective, and look to reduce their risk level – rather than leaving everything in the hands of the market – or “betting the farm” when the price is attractive – i.e. better than last year, higher than budget, or above 95 percentile for the last 10 years. It makes good sense to reduce some of the overall risk quantity when it can be done at a profitable level.

There also seems to be a lot of good news around global economic circles at present, not only in the US, but in other markets as well. Sure, there is a bit of argy bargy around the Korean Peninsula, but most of that is being blown out of proportion by the incessant media attention and those close to the action do not see it as ‘unpredictable’ but more so just talk. President Trump’s tax policy release, whilst light on details, and totally un-costed does provide optimism for business activity. The presidential elections in France appear to be on track for a moderate candidate victory, with the far-right candidate to finish in second place in a couple of weeks’ time – although we all know what happened last November in the US, so who can really believe the pollsters.

Superfine: with very few lots available each week now all but the poorest quality bales can find a home. Demand is slight, but with supply so low it is very difficult to see any downside unless the wheels fall off the rest of the market.

Medium Merino: futures prices are not indicating anything other than the usual seasonal pattern at the moment, with possibly a better than usual trend to come. Certainly no storms on the horizon at present, but still a good time to consider hedging opportunities as previously discussed.

Crossbreds: just marking time until the backlog of material clears from the pipeline. Hopefully this will be done before the new seasons wool arrives.

- Bruce McLeish is Elders northern wool manager.


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