Wool market ends financial year on buoyant tone | Elders

Wool market ends financial year on buoyant tone

Wool
Despite what some market reports suggest, the Australian wool market finished on a reasonably buoyant tone.

Despite what some market reports suggest, the Australian wool market finished on a reasonably buoyant tone.

Aa

Despite what some market reports suggest, the Australian wool market finished on a reasonably buoyant tone.

Aa

THE Australian wool market wrapped up the financial year last week, but not quite the selling season with two more sales to go before the annual three week recess.

Traditionally a time where buyers used to hop on a plane or for those who have been in the industry for a very long time - a boat, and travel back to their principal's offices and factories to review the year, and plan for the next season.

It definitely won't be happening this year.

Even with an increased offering with Fremantle back in the saddle last week the market finished on a reasonably buoyant tone, despite what some market reports suggest.

The AWEX indicators fell in local currency terms by 30c, but nearly half of that move was directly attributable to currency with the Australian dollar increasing by nearly 1 per cent against the weaker US dollar.

AWEX's Northern Market Indicator closed down 25c on 1160c. The 17 microns indicator closed on 1592c, 18 micron 1401c, 19 micron 1276c, 20 micron 1212c, 21 micron 1197c.

So, the decrease in quote levels for the majority of customers overseas was less than 2pc for the week, with some Chinese based operators reporting that "the market is really unchanged for all good Merino types in US dollars, but getting cheaper for poor types and crossbreds".

Others, like The Schneider Group suggested that the market had closed on a positive tone with most descriptions tending slightly dearer on the last day of selling.

Nevertheless 2019-20 has rolled off the page, and most people are glad to see it go.

No doubt in years to come we will be able to look back at the long-term wool price chart and put a label on this dip in price as COVID-19, just as we now do for SARS, the GFC, the Asian Financial Crisis and other significant global economic shocks that precipitated or correlated with cyclical downturns in the wool market.

This one has been a shocker undoubtedly, exacerbated by the high highs back in February 2019, and the brutal second wave of correction we have just experienced after it looked like the industry had been able to dodge the proverbial bullet when China pulled out of the virus induced lockdown back in March this year.

Having a lot of machines with no customers to export to, and a local customer base with worry on their minds has pushed wool prices back down to 2015 levels.

All the hard work, which has been done over the last five years by many different organisations to market the product, educate the consumer and establish supply chains, will not go to waste. These foundations will provide excellent building blocks for the next cyclical upswing.

The only question is when that upswing begins and how high the prices go.

But having programs and relationship in place does mean the industry can take advantage of this when consumers get active again.

Most people in the trade, whether they be in China or in Europe are saying that 'we have missed the season', due to the pandemic shutdown of retail activity.

Most are thinking about 2020-21 as a recovery season in which we will hopefully get back to some form of normality. - Bruce McLeish, Elders

On occasions in the past few years there has been a late flurry of buying and processing activity in July/August to meet frantic Chinese retail demand, when a new product has taken off.

But, with fairly subdued retail activity, and a bit of stock lying along the processing chain available to meet any uptick in last minute demand there is virtually no expectation of a bounce in price in the next couple of months.

There is however, just enough business being done that the market should remain firm(ish) over the next couple of weeks until the recess kicks in, and allows everyone to bunker down and recover.

With about 20pc of annual production being held in growers' hands or along the pipeline the upturn in prices will initially be dampened by this overhang of stock, but it is also being viewed as a vital resource to meet demand when it does return.

With such a skinny pipeline operating at present, selling 30,000 bales a week in Australia, and very little from any other source except Chinese domestic wool finding enough supply to meet a large volume order certainly does present a challenge for traders and processors.

The Chinese domestic clip is becoming available to the processing trade but it is shrinking in size every year.

The demand for meat production in China has been growing alongside the rising middle class, and it has received a huge boost with decimation of pork production in China from that 'other' flu - African Swine Fever.

Although China has more than twice the number of sheep compared with Australia, with the national flock estimated to be 160 million-plus, most of them have rather floppy ears and fat tails, and the wool is not terribly soft nor luxurious.

Current estimates of Chinese domestic apparel quality wool are around 2000 tonnes with only about 600t (6000 bales equivalent) of a length suitable for worsted combing.

So while for many the recess can't come quickly enough, most are thinking about 2020-21 as a recovery season in which we will hopefully get back to some form of normality, and demand will recover enough for prices to head back towards where they should be.

On the other side of COVID-19 people will still need to wear clothing, and the retail industry will adapt to serve them when they work out how they want to purchase their clothes.

Stocks will be cleared and prices will inevitably rise. The 89 month cycle may be the one which kicks back in for the wool industry, which may seem like a long bow for some, but roughly every seven and a half years over the past 50 odd years we have seen a complete price cycle take place.

This would see prices beginning to rise next season, probably in early 2021 and trend upwards for the next couple of years.

The next six months will no doubt still be challenging, but like after every drop in price over the past century, prices have recovered, and the highs have always been a little bit higher again.

- Bruce McLeish is Elders state wool manager - Queensland.

PREVIOUS SALES: 'Limited, poor quality demand hits wool market'.

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