Wool eases 8c to 2008c | Elders

Australian wool eases 8c to 2008c


Sheep
RECORD PRICES: Nerves got the better of most buyers seeing the Australian wool market ease slightly to 2008c last week.

RECORD PRICES: Nerves got the better of most buyers seeing the Australian wool market ease slightly to 2008c last week.

Aa

Nerves got the better of most buyers seeing the Australian wool market ease slightly to 2008c.

Aa

ALTHOUGH all the signs were present for a strong market, the nerves got the better of most buyers and we saw a slightly easier market last week, mitigated to a degree by a weaker Australian dollar.

In local currency terms AWEX's Eastern Market Indicator closed 8c lower on 2008c as crossbreds, cardings and the few good style Merino fleece lines offset the fairly steep falls in average and poor top-making style Merino fleece wool. In US dollar terms the overall market indicator eased by 26c, and the Europeans sat in the middle with a 15c decline.

AWEX's Northern Market Indicator closed down 5c on 2058c. The 17 micron indicator closed on 2608c, 18 micron 2520c, 19 micron 2381c, 20 micron 2340c, 21 micron 2321c, and 28 micron 11697c.

Overall the wool market is treading water – albeit at near record prices, so it is very surprising to see 8.8 per cent of the clip being passed in at auction last week. Perhaps some growers or their brokers have some very positive insight for the future direction, or perhaps it is simply the greed factor kicking in. If the market does receive a shock or enough bad news on the economic front, those who decided not to take the money on offer last week may very well rue that decision in coming months.

Last week’s offering quality appeared to tail off somewhat with a plethora of drought affected wools across the country. Even in Fremantle the quality of the selection was down on previous weeks making it difficult for buyers to purchase enough wools of the correct specification to fill their pre-determined orders.

The current market situation is not one where buyers are able or comfortable to buy ‘on spec’. The bulk of the orders are already set, with careful consideration given to processing characteristics. Only when off-type wools are considerably cheaper will a buyer be able to put together a parcel and find a taker for this wool later in the week, hence the larger than usual discounts that are being employed.

Given the extraordinarily high prices for a container of wool in today’s market processors overseas are reluctant to take a punt on something different, and risk having a wooltop produced which, in turn is difficult to on-sell.

The Chinese ban on South African wool has now been officially implemented across the country, after the initial spasmodic approach. - Bruce McLeish, Elders

However, the pressure on supply remains relentless and is likely to increase during the next month. The Chinese ban on South African wool has now been officially implemented across the country, after the initial spasmodic approach. Hopefully the visiting delegation from the Cape has been able to illustrate the containment of the outbreak and demonstrate the negligible risk wool, which has been shorn and packed for months actually poses. However, convincing a Chinese official to actually put his or her stamp on a piece of paper to overturn a ban such as this is a monumental task in itself and will take time, and one would expect government assistance.

So, while on the supply side of the equation pressure is strong and unrelenting at present, the demand factors are struggling and retail conditions are not exactly booming around the world. As the late Michael Lempriere was once quoted: "wool is only sold once a consumer has purchased a garment".

Supply side constraints will only hold the market for so long, eventually demand will win out. That is not to say that the market is about to plummet, but the negative factors are beginning to mount up, and simply maintaining the current levels is becoming more and more difficult with the passing of each week.

March is in the midst of the processing season and orders would normally be flowing back along the chain as retailers call in orders for the 2019-20 selling season. However, central governments around the globe seem to be in a race to see can lower growth forecasts and interest rate outlooks with each other.

Not many have room to move anyway, but the European Central Bank joined the fray last week with a statement cutting its growth forecast from 1.7pc to 1.1pc, and shovelled a heap more cash into banks in an attempt to stave off recession. Brexit and the spending habits of the Italian government are both causing those in Brussels a few headaches at present.

America is bubbling along pretty well, but there is obviously some concern that maybe the Trump stimulus by way of tax cuts and short-term stimulus is not going to have a lasting effect. The jobs report released late last week was ‘underwhelming’ to say the least and has reinforced the Fed’s ‘no more interest rate hike’ policy, in what has become a dramatic turnaround in a short six month period.

The world is still watching and waiting eagerly for further signs of progress on the Sino-US trade negotiations and whilst the feeling remains positive, substantial achievements are needed to avoid the two largest global economies falling into disrepair. The Chinese economy, and nearly every one of the millions of businesses operating there are eagerly awaiting a positive outcome.

The consumers who are being sustained by these businesses are therefore watching and waiting until there is an outcome, hopefully favourably, so they can get on with their daily activities. This feeling in China of abeyance is evident in the processing chain once you look beyond the initial mill fodder activities.

All the early stage processors are looking around very seriously for extra orders, but virtually none are prepared to offer a significant discount to current market to entice customers into making a sale. Despite the hesitation of many, stock is not accumulating at any stage in the pipeline, so perhaps such concerns are overblown, however the market would be performing a heck of a lot better if the retail trade was feeling more confident. So, a nervous few weeks lie ahead waiting for the outcome of the trade discussions and of course some rain across parched Australia.

- Bruce McLeish is Elders northern wool manager.

RELATED STORY: ‘Solid’ wool market hits 1968c’.

Aa

From the front page

Sponsored by