Wool market regains a little of its customary swagger

It didn't go crazy like it has done on other occasions, but was just a good solid rising market to suggest that perhaps, just perhaps, 2021 might be alright.

There are still 50,000 bales to clear in the coming week before the trade breaks for the holiday season and there are a few doubts about whether the market can absorb this quantity given that most of the wool will spend an extra week or two languishing in broker's stores over the shutdown period.

Normally the industry brokers on behalf of their grower clients come to the party, and push back the prompt date by a week or so to alleviate this issue which pays dividends in the auction room by keeping buyers participating up until the final lot.

Most people had expected a solid week of prices, but it was a pleasant surprise to see the market not only rise by 25c on the first selling day, but also continue and do the same on Wednesday as well.

Despite a strong local currency - or a weak US dollar, early stage processing mills and their need to stock up to cover the recess overcame any qualms they may harbour about the demand situation.

At the end of the selling week the market had risen by 54c which is the best part of 5 per cent, and a touch more than that in other currencies as a result of the strong local currency.

AWEX's Northern Market Indicator closed up 49c on 1257c. The 17 micron indicator closed on 1903c, 18 micron 1623c, 19 micron 1442c, 20 micron 1300c, 21 micron 1230c, and 28 micron 500c.

Buyers concentrated on the better spec wools generally, but with knitwear orders in the market, those lower strength wools also found a home, at a price.

With lesser volumes of low yielding drought affected wools across the catalogue these days, the odd clip that is offered can more easily be accommodated within the yield parameters for the generic types.

The discounts for a below 60pc yield are currently much less than a few months ago, when the offering was swamped with them.

The same trend will no doubt shortly apply to the discount for tender wool as we move out of the spring selection and into the autumn wools which have less of a low strength, high mid-break propensity.

Grower stocks, both on farm and in broker stores and the lag of getting the wool into market is mixing up the seasonality of the clip somewhat. This is leading to more of a mixture of qualities in any one week, rather than just spring wool, which can be a good thing for the buying fraternity, and the growers who are able to sell 'out of season'.

The volume of grower stocks however, is still causing much angst for customers overseas - not because they fear the volume per se, but more the unknown timing of its release.

The last thing that anyone wants who is involved in the wool production pipeline and holding stock, often in the range of several hundred tons, is for the grower held stocks to come flooding onto the market.

When sales resume in January, the covid restrictions in the Melbourne selling centre will be lifted and three day sales with 1200 lots per day will be allowed once again. This lifts the cap on sales volumes, brought in to restrict the amount of time people were gathered together in one room to conduct the auction.

Customers overseas are concerned that this could see weekly volumes of wool far in excess of 50,000 bales which would swamp the fragile demand situation we currently have.

The psyche of the overseas buying fraternity seems to be to back off when the predicted offering is above 40,000 bales, in expectation of cheaper prices as the supply overwhelms demand.

Invariably, grower reserves kick in, pass-in rates climb, as do withdrawals for the second day of sales, and we get back to a smaller volume and prices climb again.

All this results in a lot of extra work putting out showfloor samples, valuing wools and adjusting catalogues.

The solution is to vaccinate. This appears to be the best chance to get demand back in the driving seat, rather than the market being driven by supply side worries.

With vaccines starting to be pushed out around the world we may just get through what had looked like being a tough time in the early part of 2021.

The Chinese domestic season is drawing to a close with retailers having enough stock on hand to see them through until the end of the winter selling season.

Spinning mills and fabric producers in China are already slowing down, and switching across to spring/summer fabrics, which invariably consume less wool if any.

Some of the previously overly optimistic mills are desperately trying to offload their excess production of double-faced fabric and the like, before they get stuck holding it for another season.

Demand for the next China domestic season is expected to start to wind up again in June/July.

Europe (and other export markets) traditionally fill the gap as their longer lead times mean that they are starting to produce their autumn/winter 2021-22 collections shortly.

Until vaccines actually started being handed out last week, it seemed a bit of a pipe dream to think that any production would be occurring in Europe during the first quarter of 2021.

Now Boris is handing them out in the UK, Canada to follow shortly, China exporting large quantities of their version, and even Sputnik 5 is being pushed out across Russia.

Although some of the medical advice in Russia is causing some angst as they recommend avoiding alcohol for six weeks prior, and six weeks after the vaccination, which is making it hard to get some locals enthused about it.

In the meantime, the Australian wool industry will try to sell 50,000 bales this week without swamping the market, head to the beach for three weeks break, and then come back to a hopefully better, healthier, more stable 2021.

- Bruce McLeish is Elders state wool manager - Queensland.

CLICK HERE for last week's report: 'Wool market virtually unchanged | Elders'.