Australian wool market closes lower | Elders

Australian wool market closes lower

Wool
WOOL SALES: Superfine holds strong as some Merino fleeces fall by up to 80c.

WOOL SALES: Superfine holds strong as some Merino fleeces fall by up to 80c.

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Superfine holds up as some Merino fleeces fall by up to 80c.

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AS expected the market was lower last week after showing signs of wobbling at the end of the previous selling session in Fremantle.

Overall the market eased by around 40c with some of the Merino fleece types falling by up to 80c as the discounts kicked in again.

When buyers are not as enthusiastic to soak up quantity the amount of discount applied to a particular fault is exacerbated and so the simple numbers of lots with fault over power the indicators for the market in a selection which we have at present with the ongoing dry conditions. However, it was not terrible news during the week with the first day of selling seeing 20-30c come off fleece values.

AWEX's Northern Market Indicator closed down 43c on 1583c. The 17 micron indicator closed on 1978c, 18 micron 1875c, 19 micron 1776c, 20 micron 1725c, 21 micron 1713c, 28 micron 919c, and 30 micron 693c.

Then as more wool was passed in or withdrawn the buyers, particularly by the end of Thursday's auction in Fremantle had to scramble to fill orders and the market yet again finished stronger in the west than it did in the east.

Merino fleece generally lost 50c, except for the superfine sector which held up pretty well. Crossbred wools were 30-40c lower, while carding wools were 30c lower on average.

This week should see a much better tone around the country with encouraging signs emerging late last week to suggest that the upward trend will be re-established again - at least for a week anyway.

Not only was there a much stronger mood in the Fremantle market given the short supply created by growers passing in or withdrawing wool, but the volume of Chinese trader enquiry on Friday suggests mills are still hungry.

Australian exporters are reluctant to offer anything they do not already own given the volatility of late causing a market to move far more than the normal margin available when trading wool. Selling a box or two on a Friday night, just to cover overheads can turn into a disaster by the time the auction rolls around the next week.

So, the general mantra for exporters at present seems "if you don't own it, don't offer it". This is prudent, but hardly satisfying for those mills in China seeking to cover their sales of wooltop and yarn and keep the mill machinery turning.

The ongoing volatility is getting on everyone's nerves from farm gate right along the pipeline. Planning and budgeting become that much harder when the price of the raw product is jumping around like it has been of late. There seems to be a very strong correlation to the pattern last seen in 2011-12 when the market fell and subsequently recovered.

The chart of 19.5 micron wool in US dollar terms is almost identical to the corresponding period in 2011. After a low point in August, a spluttering recovery saw prices generally lift through until the New Year or Chinese New Year. After that point, which is also the peak processing period, prices did ease back again, but for now the market seems like it will follow a similar pattern.

For those who are just too busy, or distracted with other facets of their business using the futures market would be a wise strategy. Taking certainty of income over the fear of lost opportunity should be foremost in grower and processor's minds in the current climate according to Mike Avery of Southern Aurora Markets.

So far this season we have seen a bale of 21 micron wool range in price from $2500 to $1750. - Bruce McLeish, Elders

So far this season we have seen a bale of 21 micron wool range in price from $2500 to $1750. Rather than watch the yo-yo and worry about which week is the best to sell, or what price it will be in January, locking in a price now at the mid-point ($2125) which incidentally is the 82nd percentile for the last decade can be done by using Riemann Forwards at 1700c.

For both a grower trying to budget or a processor trying to allocate funding and sell future production this provides a base and takes some risk off the table.

Demand from further upstream is ever so slowly increasing as we move into November and the processing fraternity look a bit further forward than they have been until now. The economic scene around the globe is not inspiring, but has possibly moved from terrible to so-so, allowing a few of the more optimistic to place firm orders for the 2020-21 season.

A surprise bounce in Chinese manufacturing and optimism over the US-China trade talks, as well as improving US employment numbers provided a fillip to world equity markets and confidence for consumers according to a recent HSBC report. Equity markets across Europe and the Americas rallied, with the S&P 500 and Nasdaq hitting closing record highs, and MSCI's gauge of equity performance across the globe rose to within 2 per cent of its all-time peaks set in January 2018 said HSBC.

Equity markets do not necessarily correlate directly to wool prices, but they do flow through to confidence for consumers in the longer term and as such a rising share market is going to help re-establish the upward trend for fibre prices - provided of course the bubble doesn't burst.

There is still lots of intrigue about what will be included in the first-stage trade deal between the US and China, where it will be signed, and when pen will actually be put to paper. Nobody is out there saying the wheels could still fall off at present, so the pent-up desire of both sides to get some sort of a deal done and de-escalate the tariff cycle should see something positive emerge in coming weeks.

According to some commentators the roll-back of tariffs would be a powerful thing for the global economy and a boost for confidence. Moving from a situation of increasing tit-for-tat tariff increases not long ago, to one where tariffs are seen as a temporary feature on the global landscape is a major swing indeed.

All of the commentary of late in the media, in a general sense at least has swung over to a more positive vibe on this issue. Hopefully their new-found faith is not misplaced and the economic world can actually back a winner shortly.

Those still waiting for their Melbourne Cup hopefuls to finish should think about replacing the jockey silks with a better high-performance fibre - Merino would keep them much cooler, be a lot less slippery and help the racing industry tick a few boxes around sustainability and animal welfare concerns. Perhaps a good marketing exercise for AWI next year.

- Bruce McLeish is Elders northern wool manager.

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