Wool eases another 29c | Elders

Australian wool market eases another 29c

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The Australian wool market eased a further 29c on the back of a poor quality selection and muted demand.

The Australian wool market eased a further 29c on the back of a poor quality selection and muted demand.

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The Australian wool market eased a further 29c on the back of a poor quality selection and muted demand.

Aa

IT was another week of general softening for wool prices in Australia due to a poor-quality selection and muted demand, which saw AWEX's Eastern Market Indicator close 29c lower on 1979c.

The drop was less significant in US dollar terms. However, with only 18c being shaved off the indicator and the same in Euro. The market is certainly not falling away, but merely reacting to the drought affected selection on offer at present, with AWEX reporting that the average yield of Merino fleece last week was only 64 per cent.

AWEX's Northern Market Indicator closed down 31c on 2027c. The 17 micron indicator closed on 2560c, 18 micron 2472c, 19 micron 2340c, 20 micron 2309c, and 21 micron 2291c.

Unfortunately, we are exporting a lot of valuable topsoil with our wool at present. This not only represents a loss to farmland in Australia but also poses a significant cost to processors overseas who must deal with the higher charges associated with removing and disposing of this dirt. Much of it will find its way into compost and garden products, but the cost for scouring plants is certainly higher on these low yielding wools, as is the transport cost per kg of wool.

The better style Merino fleece wools more or less maintained their values last week, while the poorer styles lost between 50c and 80c. Skirting types followed a similar pattern to the fleece, cardings were mixed across different types and different selling centres, whilst crossbred wools seemed to have run into some price resistance and fell back 20c or so.

The wool market appears to be swimming against the tide at present with the adverse currents of the sluggish Chinese economy, the South African food and mouth disease issue and world economic conditions all making progress difficult.

Unfortunately, we are exporting a lot of valuable topsoil with our wool at present. This not only represents a loss to farmland in Australia but also poses a significant cost to processors overseas who must deal with the higher charges associated with removing and disposing of this dirt. - Bruce McLeish, Elders

There has been plenty written of late about the Chinese economy and the fact that the US-Sino tariff discussions are dragging on longer than initially expected. It does take time to finalise a complex, definitive, measurable and productive agreement of this sort, so the longer talks progress the greater the likelihood that something meaningful can be achieved. Once complete it still needs to be ratified by the US Congress and The Chinese authorities - although one would expect passage through the Chinese side of things would be fairly swift once President Xi has agreed to it.

No doubt the Democrats will make life difficult for President Trump, but all American businesses will be pushing very hard for a positive outcome in the shortest possible time. The timeframe now appears to have been extended unofficially to April, so certainly sooner than Brexit.

Interestingly there are some notable economists being reported in the media who have the opinion that the world economy may bottom out in this quarter or next and then start to accelerate again later in the year. "Put in the Federal Reserve pause, trade truce, and China stimulus together and we're looking for a trough in the first quarter and very moderate pick up ahead," said Tom Orlik, chief economist at Bloomberg Economics according to a Sydney Morning Herald report on the economy last week.

For months now, the bears have been front and centre often goaded by the sensationalist media, but with Deutsche Bank and Morgan Stanley also joining the bulls perhaps there is a slightly brighter light on the horizon. Many central banks have followed the lead of the US Federal Reserve by paring back their tightening monetary policies and adding a bit more on the stimulus side of the equation.

It may well turn out to only be a short-term fix, but then again, it may just be enough to turn the good ship around. If it is, and it certainly appears to be working in Europe with a slew of numbers coming through last week showing positive signs again, perhaps we can see the demand filter through to retail in time to finish the wool processing season with a flourish. At present it looks more like a fizzer, but it would not take much to turn it around with every processor along the pipeline poised to react to any positive signals that may be forthcoming.

Despite the recent doom and gloom, nobody has been prepared to punt the market down at all, and most in the early stage processing trade at least would rather sit and watch, than take a firm position on the market. This may well be in response to the very tight cash positions that many are facing this year.

As Scott Carmody pointed out in last week's AWI commentary, traders are feeling the pinch when it comes to funding wool. Not only the sheer volume of dollars required at present, given that buyers generally pay for wool seven days from fall of hammer, but only receive funds from their clients 10 days after shipment, but also due to the fact that some have greasy wool tied up in South Africa, which has been paid for, without the possibility of shipment to China at this stage.

Wool traders are a resourceful lot however, and banks in Australia are on their best behaviour at present, so the funding issue should not become the defining factor of the market going forward. Price determination in a free market, which we thankfully have here in Australia, unlike the poor growers in Lesotho, will always come back to the fundamentals of supply and demand. After an initial overzealous buying flurry by weavers and knitters in China following the Spring Festival they have become a little more circumspect, and new orders have been more difficult to come by.

With supply (of good wools) expected to tighten up after Easter as it usually does processors are wary of overselling this market, but also the first offers of Russian greasy wool are beginning to emerge. This greasy wool can only be used for specific purposes, but it does relieve the pressure in general on combing machine fodder hence the overall easing bias we are seeing in the market at present. On the charts there seems to be a little more weakness in store of 19 to 21 micron wools but it will only take one decent sized order in the market to pump it up again.

- Bruce McLeish is Elders northern wool manager.

RELATED STORY: ‘Australian wool eases 8c to 2008c’.

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