THE wool market's 'annus horribulus' continued last week as auctions resumed in Australia, with the COVID-19 situation no closer to resolution, a weaker US Dollar and a relatively large offering of wool all contributing to a savage drop in prices.
Early expectations were for a drop of around 50-60c in local currency terms to make up for the currency movement.
AWEX's Northern Market Indicator closed down 131c on 1044c. The 17 micron indicator closed on 1478c, 18 micron 1272c, 19 micron 1126c, 19 micron 1083c, 20 micron 1081c, and 28 micron 520c.
When auctions closed for the recess the Australian dollar had been trading at US69.2c, and as auctions opened this week it was closing in on US72c making wool much more expensive in US dollar and Chinese yuan.
However, the fact that demand had not improved over the recess, apart from a small niche of 17.5-18.5 micron short wools, led to buyers being reluctant to purchase too much of anything.
Wool is volatile and at some point before Christmas we will see a spike in demand creating angst about rising prices.
- Bruce McLeish, Elders
A lack of firm orders, and cash constraints was always going to make it tough to absorb the large offering, despite having had no sales for three weeks.
So, after the dust settled and the pain eased, the market had dropped by US63c. As mentioned the currency movements during the recess needed to be accounted for, and that meant the damage in local currency was a staggering 128c drop.
There were no real winners across the micron range with all types and descriptions falling by similar percentages.
The good news is that the Aussie dollar is getting to the top of its range, at least by some commentators' advice, so we are less likely to see the added burden of currency adjustment being a factor in coming weeks.
Of course, there are still 88 days until the US Presidential election so world currency markets are likely to remain unstable for at least that period.
For the wool industry the key is, and always has been, demand from consumers. At present with the COVID situation causing angst across the globe the volume of retail demand has fallen by 40-50pc.
There are some bright notes with areas such as athletic and casual wear seeing an uplift, and some enterprising operations making face masks from superfine Merino.
The sales of bread and butter garments which provide the bulk of consumption however are down, and significantly.
Retailers are hoping, like everyone for some stability or normality to return, and once the holiday makers return from European or American beaches that they will do some serious shopping.
The autumn/winter season is just around the corner for the northern hemisphere folk, and there is a possibility that the situation will get better - enough - for a boost in consumer activity.
Governments around the world continue to roll out stimulus packages to keep economies from going into freefall. In Europe a casual Euro750 billion has been dished out in a combination of loans and grants.
This together with an improvement in German new manufacturing orders which jumped by 28pc over June's number, well above the forecast of a 10pc increase, does highlight the general trend of recovery in Europe - albeit slowly.
Nobody is mentioning the 'V' shaped recovery these days, as had been hoped for a couple of months ago, back a 'backward leaning L' seems to be the most likely scenario nowadays as everyone battles a second wave to some degree.
In the US there is a building optimism that lawmakers will pass the next trillion-dollar stimulus package, once they get over their party-political bickering, and this amount of cash will certainly help the struggling economy in the world's largest consumer market.
Other positive developments often get drowned out by the sensationalist media grabs or the anti-maskers, but steady progress is being made in a number of vaccine trials, the seven day rolling average of reported cases in the US is starting to trend lower and other countries are learning how to manage the second and third waves of infections without going back to a Victorian style lock-down.
Putting the sensationalism to one side, it would seem that progress is being made, which for the wool industry is obviously incredibly important.
The current price level, some 40pc down on last year, is not solely, but is a heck of a large part attributable to COVID-19.
The market had undergone a correction, and had taken a hit from the US-Sino trade war, but most of the damage has been as a result of the demand destruction brought about by this nasty little virus.
Getting people back out into the shops is the key to getting the wool price to move upwards again.
Balancing the supply side of the equation towards a more manageable 30 odd thousand bales per week will help, and with many early stage processing mills only running at 50pc capacity this seems like all the industry can consume at present.
Orders will come for a few last-minute creations for the current season, and then processors will need to focus on the new processing season from October onwards.
But, the stock in the pipeline needs to be cleared, so the recovery will be slower as a result. Nevertheless, wool is volatile and at some point before Christmas we will see a spike in demand creating angst about rising prices.
The world is still awash with microplastics and natural, noble fibres such as superfine merino wool will be far easier to sell to the educated, environmentally aware consumer when they do return.
There was some evidence of the more astute buyers, or those with deeper pockets who could see last week's market as a buying opportunity to think that we will see better times just around the corner. In the meantime, everyone should 'mask up, with Merino'.
