It’s a record wool price – again | Elders

It’s a record wool price – again


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BRIGHT FUTURE: AWEX’s eastern market indicator closed a further 22c higher on 1522c.

BRIGHT FUTURE: AWEX’s eastern market indicator closed a further 22c higher on 1522c.

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AWEX’s eastern market indicator closed a further 22c higher on 1522c.

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THE Australian wool market continued to gain ground this week with AWEX’s eastern market indicator closing a further 22c higher to 1522c. The rise in the overall market indicator was courtesy of both ends of the clip helping to lift the average whilst the bulk areas of 21-22 micron wools held unchanged at resistance levels.

Superfine wools gained between 50c and a 100c/kg depending on specifications, and crossbred wools continued their recovery by adding up to 30c for the week. 1500c proved to be the ceiling once again for 21 micron. As discussed last week a solid, steady market for medium Merino wool is preferable for the long-term viability rather than an ever-inflating bubble. The Australian dollar weakened significantly during the latter part of the week and this provides an interesting conundrum for buyers overseas.

AWEX’s northern market indicator closed up 23c on 1605c. The 17 micron indicator closed on 2235c, 18 micron 2143c, 19 micron 1902c, 20 micron 1638c, 21 micron 1501c, 22 micron 1439c, 28 micron 756c, and 30 micron 583c. AWEX’s indicative 185kg bale price for 17 micron is $2620, 19 micron $2273, 21 micron $1784, and 28 micron $896. 

The market is looking decidedly healthy from nearly every angle at present with lack of supply keeping things rolling along. While there is some talk of price resistance in certain sectors, importantly in the growth areas such as active wear the price of Merino is not really a topic of conversation. Most interesting is the way in which the wool market appears to be dissecting itself into distinct categories based on micron or final product usage. The superfine Merino area continues to climb in price, and although the current levels are very pleasing for growers, in US dollar terms the increase in 17-micron prices is only 65 per cent from its low point of the last five years.

In simple terms, this current price rise is not an exceptional jump in prices compared to the 250pc rise we saw in the 1988 and 2011 cycles, and so it would be reasonable to assume the correction does not need to be as severe either.

Medium Merino prices are trading at very healthy levels, and while they have reached resistance levels and paused, again the chatter about price resistance is minimal. Supply is the major factor keeping them from breaching the current ceiling, but most growers are still seeing an improvement in gross receipts given the extra kilos coming out of shearing sheds this season. Given the infrastructure and machinery commitments of alternative agricultural enterprises it is difficult to see a massive swing back towards Merino production in the short term, so excess supply will be limited to seasonal adjustments, therefore the market is unlikely to be swamped with product as was the case in the late 1980s. The third distinct sector of the market at present is at the coarse end where crossbred prices have made a welcome recovery from the depths. There is unlikely to be a lot more upside in the short term for these wools until the large volumes of stock in China are cleared however, but with lamb prices predicted to continue to increase in the short term to an average of 600c/kg next season most crossbred enterprises will be happy to continue doing what they are best at.

This dissection of the wool market does pose an interesting question for the industry at large, and those tasked with promoting, managing and marketing the woolclip. Should the industry be formally divided into a merino segment and a crossbred or wool segment? Given the price disparity, and the different outlook for the different fibres perhaps it is time to differentiate merino from wool. The retail market is already heading down this path with many garments being promoted at Merino, and the negative connotations of itchy, scratchy wool being left behind.

The opportunity to move the Merino industry forward into premium fibre territory has never been more apparent. It would also provide an opportunity to strengthen the quality parameters and define more rigorously the fibre characteristics and add to the provenance discussions that are being held at a retail level. Certainly food for thought among those at the pointy end of the industry, and a way to take control of the future rather than succumbing once again to price taking in the long term.

On the economic front the world continues to be a relatively happy place. The previously rising notoriety of the populist candidates in upcoming European elections appears to be waning which can only be a good thing for stability, and the economic situation in Europe continues to improve. Overnight the European Central Bank maintained the current policy settings, but some of the previous urgency has dissipated and the European currency showed some signs of recovery. Pretty much every economist in America is convinced that the Federal Reserve will lift interest rates at its meeting on March 15, as the US continues on the road back to prosperity.

The UK is also forecasting reasonable growth in the year ahead and even finding some benefits beginning to appear from the Brexit situation. China, who took a massive 86pc of Australia’s wool in the month of January, has registered a trade deficit as imports increased much more than exports in February. Providing another sign of their maturing economy, and increasing domestic consumption, which has been apparent in the wool statistics for the past couple of years. All these factors should point towards a further softening of the Australian currency, which if gradual, will be further supportive for wool prices locally.

- Bruce McLeish is Elders’ northern wool manager.

The story It’s a record wool price – again | Elders first appeared on Queensland Country Life.

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