Wool market correction 'we had to have' | Elders

Wool market correction 'we had to have'

Livestock
The 56,000 bale first week sale provided the trigger for buyers to ease back.

The 56,000 bale first week sale provided the trigger for buyers to ease back.

Aa

The 56,000 bale first week sale provided the trigger for buyers to ease back.

Aa

THE correction 'we had to have' came to pass last week for the Australian wool market.

It was all but locked in after the publication of the AWEX Four Week Forecast which was issued on Monday confirming that Week 1 of the new season commencing on July 6 would host an offering of 56,000 bales.

The market has previously been getting "toppy" and the FWF provided the necessary trigger for buyers to ease back and see where prices would settle.

They quickly dropped once auctions started on Tuesday last week, and most Merino fleece types recorded a 40c drop.

Even though pass-in rates climbed to a massive 40 per cent of fleece types in one broker's catalogue in the west, buyers remained resolute in the belief that wool prices needed to correct.

By the end of the selling week on Wednesday it was clear that there were still some orders in the market, and superfine merino lots with good specifications were still highly prized by the trade.

Overall the market eased by 45c in local currency terms, US37c and for those Europeans already out of the football cup and back at work their greasy wool inputs were Euro30c cheaper.

AWEX's Northern Market Indicator closed down 42c on 1522c. The 17 micron indicator closed on 2545c, 18 micron 2143c, 19 micron 1738c, 20 micron 1438c, 21 micron 1302c, and 28 micron 490c.

So, the bubble hasn't burst, it is just that the market has let off a little of the price pressure which had built up over the past 6 weeks with back to back to back rises.

A lot of the participants at the far end of the pipeline, at fabric or final garment stage, had been asking questions about why the greasy market was going up so much.

To them it didn't make a lot of sense, when they themselves were just manufacturing the product for the coming season, not increasing consumption yet, and still nervous about whether consumers would come out in force in September.

Exporters, traders and early stage processors had all got a little over-exhuberant and kept pushing prices for greasy wool higher and higher, without regard for what their clients further downstream were telling them.

Thus, a little slap-down, reality check driven by a sudden increase in supply brought about by the new financial year rolling over.

Some growers, and in particular their brokers have been very mindful of the delicate supply-demand balance and urged growers to spread their sales over a number of weeks.

Other brokers have only their own cash flow considerations in mind and happily dumped as much wool as possible into weeks one and two.

The international trade has been imploring Australian growers to collectively manage the supply flow of wool onto the market via their brokers.

The Schneider Group mentioned the unofficial stockpile in their weekly report, and described this as an asset to the industry, but also implored growers to have a discussion with their broker about the best time to sell their wool.

No doubt many will decide this coming week is now not the best time, and so will subsequently withdraw their clips from sale, or worse leave it in the market with the vain hope that prices will shoot up again and trigger their lofty reserves.

Such are the vagaries of a free, and usually fair market.

Nobody with any sense wants to return to the artificial situation and manipulation of a reserve price scheme, so we have to work with what we have - and most of the time it works pretty well.

A large percentage of the trade expect a further easing of prices in the coming week, although it is likely to be of a much lower magnitude and more selective than the wholesale correction experienced last week.

With only two selling weeks remaining prior to the recess, production mills are calculating their stock levels and will need to make sure they have the recess covered.

With only two selling weeks remaining prior to the recess, production mills are calculating their stock levels and will need to make sure they have the recess covered. - Bruce McLeish, Elders

Exporters on the other hand are calculating their remaining cash balances and will need to make sure they do not overspend in the run-up to the recess.

The recess will give them time to get wool on the water, and money back in the door, to appease their nervous accounting people, as the higher prices and slower shipping times have certainly stretched finance lines to the max recently.

Besides the European Cup, the Tour-de-France and Wimbledon, a couple of important textile fairs are also taking place in Europe.

Pitti Filati was held the previous in Florence. Although it was difficult for international visitors to attend in person, everyone who is anybody in the yarn and knitting industry was there either virtually or in person.

Knitwear has been the first woollen sector to recover from the pandemic jolt, and certainly those producing the yarn and garments want to capitalise on this momentum.

This week sees Idea Biella take place in Milan, and although Covid restrictions will again limit international visitors it will provide an important launching pad for the worsted fabric sector.

Some activity, and certainly a higher degree of optimism is evident in the weaving industry in recent weeks.

Brands across Europe are talking about upcoming collections and taking samples, while brands in the US appear to be one step ahead and actually starting to place firm, if small, orders of fabric.

So, the post-pandemic recovery continues for the wool industry, and the resilience of growers, brokers, exporters, and processors has allowed the industry to weather the storm - thus far.

Provided cool heads prevail, and the supply-demand equilibrium maintains its delicate balancing act without a further jolt, the market should manage to right itself by the time the recess rolls around and everyone takes a well-earned break.

No doubt there will be plenty of twists and turns in the first half of the new season, but the outlook appears brighter with each passing week.

- Bruce McLeish is Elders state wool manager - Queensland.

Want daily news highlights delivered to your inbox? Sign up to the Queensland Country Life newsletter below.

Aa

From the front page

Sponsored by