THE wool market continued to meander down this week. More dramatic moves were seen in local currency terms with a stronger Australian dollar seeing the price moves basically double those registered in US dollar terms.
Overall AWEX’s eastern market indicator retreated by 27c to 1495c, but only eased by 13c in US dollars and 20 Euro cents. A large volume of low performing wools, in terms of strength and excessive vegetable matter (VM) attracted increasing discounts from selective buyers and no doubt contributed to the negative market sentiment.
AWEX’s northern market indicator closed down 32c on 1580c. The 17 micron indicator closed on 2265c, 18 micron 2148c, 19 micron 1891c, 20 micron 1590c, 21 micron 1477c, 22 micron 1419c, 28 micron 755c, and 30 micron 563c.
Despite a relatively small offering of only 34,000 bales across the nation demand is subdued enough that buyers can afford to be selective with their purchasing. Indeed the few available lots of superfine Merino that exhibited the correct specifications were almost unchanged in price from the previous week. However, buyers doubled down on discounts applied to medium Merino fleece and skirting types.
Given that around 10 per cent of the offering was previously offered wools, according to AWEX figures, many of these growers and a portion of others obviously had hefty reserves in place and the reduction in prices saw a further 15pc of the sale passed in. A very limited selection of carding wools saw prices reman firm, and crossbred wools likewise remain in small enough volumes to more or less hold the level as well.
Demand is not plummeting by any means, and we have certainly seen the market perform far worse than this in the May/June period. Only occasionally has the market surprised on the upside at this time of year. Much of the time from April onwards we see the market drift south until something triggers a recovery later in the year. Some of the seasonality is being removed from sections of the market as a result of tight supply or ongoing demand for new products that sell all year round. For example, a fair section of the active wear sells all year round, compared to the traditional garments such as the wool sweater.
A further factor in reducing the seasonality is occurring in the traditional Italian superfine arena, with many of the fashion shows being held this year prior to the annual August holiday break. This means that manufacturers in that space need to have some raw material on hand in late June/July to service the early orders gained at these fairs, rather than running totally empty through until the end of August. This factor has helped maintain superfine prices – for those lots that meet specification – for a longer period this season than would normally be the case. Depending on the success of this year’s event, spreading the demand across the year like this may continue, and if by default it reduces some of the seasonal highs and lows everyone will be much happier as a result.
The last thing that any processor in the superfine Merino pipeline wants to see is for prices to fall heavily at this point. They have a substantial investment in the industry, both in terms of machinery and in product. Now that superfine prices have reached a level where premiums are being paid above medium Merino, and growers of superfine merino are profitable, everyone from the farm gate to retail would like to lock in the gains and reduce the volatility.
Medium Merino prices are also performing quite well given that we are at the end of May, despite the increased discounts seen this week for faulty types. Buyers do have one eye on approaching stocks of greasy wool from alternative Northern Hemisphere shearings, but most of these cannot replace Australian wool for the highest quality production – but they do serve to fill a mill with fodder when orders are limited. Uniform orders in China remain spasmodic but are underpinning the production at some of the larger weaving mills, which is a handy thing to have.
In US dollar terms the price for 21-micron merino remains in the upper band of its recent trading range. No doubt some in China would like to see the price come down a little more to make sales a bit easier, but a reduction of US50c over the next month should be enough to have most people in a good place when the market reopens after the recess. The futures market mirrors this scenario, temporary blips aside, with a floor of around 1400c having been in place for spring sales for a number of weeks now.
So all seems to be going according to plan in the wool market at present – no doubt the currency or world economics will throw the odd curve ball into the mix – especially as the value of the Australian dollar had dropped by nearly a cent since auctions closed on Thursday. But given smooth sailing on these fronts the Australian Merino industry looks set for an exciting 2017-18 season.
Superfine: If the quality fits, prices will be sustained – but poorer style wools will struggle to find much love in the short term.
Medium Merino: At current prices, or even allowing for a gradual phase down of US50c/kg growers selling in the new season will be entering their marketing program in a good position. For those who have taken advantage of the futures market the stress levels will be much lower and they can afford to enjoy the process a little more.
Crossbreds: The continued drip feed of supply onto the market is keeping the patient in recovery mode. We will need to continually monitor the performance over coming weeks but things look promising.