IT was another week of similar activity in the wool market, with the overall market drifting south in US dollar terms as the processing season winds to a close.
A slightly favourable exchange rate meant that the decline in the overall market indicator was only 10c for growers in Australia, while customers overseas saw a US17c decline in prices.
AWEX’s northern market indicator closed down 16c on 1892c. The 17 micron indicator closed on 2752c, 18 micron 2345c, 19 micron 2086c, 20 micron 1989c, 21 micron 1964c, 28 micron 998, and 30 micron 708c
Buyers with tight greasy wool parameters would have noticed very little change to their quotes over the past few weeks. However, In simple terms the good wool types are holding in price, while the plentiful supply of poorer quality wool is dragging their quotes and the broader indicators down week by week.
VM levels should start to dissipate shortly following the usual seasonal pattern, but everyone is still watching the weather to try and anticipate what the new season will deliver in terms of wool quality. More widespread rainfall is desperately needed to restore confidence for the season going forward at the farm gate, but for the processing fraternity it will signify a large increase in tender wool coming their way in six months time.
With new receivals into store beginning to dry up across the nation it is unlikely that the trade will see more than 40,000 bales a week again until the traditional bigger offering during the first week of July.
- Bruce McLeish, Elders
This tender wool can be dealt with at the early stage of processing, and with the increasing volume of prem shorn wools available a topmaker has plenty of blending options to use tender wool, provided they are not swamped with it. However, mills overseas will be closely watching the seasonal conditions here to try to anticipate what style of wool might be available next season as they begin to offer forward sales of tops and yarn.
With new receivals into store beginning to dry up across the nation it is unlikely that the trade will see more than 40,000 bales a week again until the traditional bigger offering during the first week of July just before the recess. However, early stage processors are seeing their demand start to wind down for the spring/summer period, thus their appetite for Australian wool is also declining. This helps explain why we are seeing all the major wool sectors retreat from their high points in US dollar terms at least.
The broader Merino segment held up much longer than the fine and superfine segments in response to a shortage of supply, but is now drifting down from the peak of two or three weeks ago – in US dollar terms. Crossbred wool – the late bloomer, also reached a US dollar price on par with the peak of 2015 and 2011, and unless something startling happens on the demand front should continue to ease back gradually over the next four months.
As the wool trade begins to look forward to the new season people are perhaps paying more attention to other factors on the horizon, which may or may not become a threat. Very little attention has been paid to external factors from within the wool-processing pipeline of late, but now that people are raising their eyes to look at what 2018-19 may bring some attention is coming to bear on the outside world.
Thankfully there are no major alarm bells, perhaps despite what the media headline writers would have us believe. The economic driver of the global economy in recent decades has been the American consumer with their frenetic desire to purchase, consume, dispose of, and purchase again, goods from all over the world.
The US Federal Reserve this week held interest rates steady and expressed confidence that a recent rise in inflation to near target levels would be sustained according to a HSBC briefing paper. The fact that the Federal Reserve, and possibly the European Central Bank in the not too distant future, will be able to slow down the money printing presses, which have been artificially sustaining the global economy, is good news.
This stimulus has kept the various economies on life support following the GFC shock, and perhaps avoided what seemed to be a near certain global recession. Of course this mountain of debt remains and exactly how it will be paid back is another story.
As a result of the improvement in the American economy, and positive signs across most of Europe, the manufacturing centres around the world are beginning to hum. Enter stage left, one Mr Donald Trump who would like to take this opportunity to rewrite a few of the trade agreements that he inherited from previous administrations who were perhaps a little less concerned about the heartland of America – at least that is how he is selling it.
The mainstream media are still reacting with predictable fervour when Trump tweets anything along these lines however. The “impending trade war with China” is settling down nicely to a negotiation about how America can export more high tech and services to China whilst the opportunity still exists.
The general increase in consumer activity across the globe augers well for wool prices in the 2018-19 season, although it the market were to level out here and remain at current levels for a few years nobody would be complaining. Unfortunately, wool has not lost its volatility streak entirely.