CURRENCY dipped nicely again just before wool auctions began in the past week allowing for a stable market in US dollar terms.
The overall increase of 27c in local currency terms, coincidentally gaining exactly what it lost the previous week. AWEX’s eastern market indicator closed on 1778c.
Superfine Merino types were on the back foot, with very few lots offered, and even fewer lots demanded, but remained in positive territory in Australian dollar prices. Medium Merino types all recorded small gains in US dollars, and improved by 30-50c in grower accounts.
AWEX’s northern market indicator closed up 26c on 1852c. The 17 micron indicator closed on 2776c, 18 micron 2348c, 19 micron 2074c, 20 micron 1960c, 21 micron 1914c, 28 micron 842c, and 30 micron 588c.
The overall tone of discounts for processing faults prevailed and looks certain to continue for the future now that these discounts have become well established in the barames of buyers and processors. This is a healthy and logical trend and will provide growers with clear market signals about which wools are better for processing and therefore worth more money to their customers.
The overall tone of discounts for processing faults prevailed and looks certain to continue.
- Bruce McLeish
Of course not all of these faults can be avoided or managed depending on seasonal conditions, but they are real and previously a surging market scenario has hidden them from view. The knitwear sector continued to match the fleece types with solid gains for medium micron pieces and bellies containing moderate VM while cardings were stronger across the board. Crossbred wools also found good support both here and across the ditch with increases of up to 30c.
Demand is not exactly buoyant at the moment, and new sales in most markets are hard to come by. However, the processing juggernaut rolls on mindful of the one week recess coming and the need to keep supply topped up in front of machines until the northern hemisphere shearing begins in a couple of months.
Growers are understandably keen to get any newly shorn wool into market at present, so the sale next week is pushing close to 50,000 bales, as will be the sale immediately after Easter. This will challenge the cash strapped buying fraternity and no doubt there will be more selective purchasing in order to balance the books and extract best value for the money invested.
Prices of wooltops and yarn are starting to be offered on a two-tier basis depending on shipment required allowing for an easing of the market in May/June as topmakers and spinners try to maintain their order books. The discounts are not huge at this stage, and virtually line up with the published prices on the Riemann futures market, where the normal cost of interest and storage is factored into prices. So a drop of 10-20c a month is about the worst-case scenario at present, all things being equal and barring any major world economic problem.
Other markets around the globe, outside of China are continuing in full production mode at present more concerned with prompt deliveries than future purchases. But there is still a very good vibe around the trade and the new products that have been exhibited are generating a lot of enthusiasm.
There is a growing sense that customers, particularly those Millennia’s who shop on line want to buy less often, but buy right. They are also asking more questions of the retailer around sustainability and traceability of the product. Merino ticks most of the boxes for them and so the outlook for demand at the high end of the production scene looks very good. At the ‘other’ end of the scale where manufacturers are producing a cheaper article for the masses there is an ongoing struggle with current prices.
The more technically savvy processors have been able to adapt the balance of fibre to offset some of the Merino price rise, but other are simply banging their head on the table and asking for last year’s price. They will simply be unable to afford the same input specification as last season, which does present a problem for the industry in terms of maintaining the quality perception of wool. If they use low quality wool in order to meet the price point the garment may end up being the old ‘itchy, scratchy’ product that the industry has successfully gone away from in recent years. Hopefully this small segment of the market does not generate too much bad product, but it is yet another case to support the formal differentiation between merino and wool.
From an economic perspective the outlook is a little more uncertain than the fundamentals of the merino industry. This week saw the US Federal Reserve increase rates as expected, making the US interest rate now above the RBA cash rate for the first time since December 2000. In theory this should see a depreciation of the Aussie dollar as the interest rate differential has been used so often in the past to explain the strength of our currency. However, a US economy strong enough to require increasing interest rates is also good for global commodity demand, thus supporting the Australian dollar. How Mr Trump’s pseudo trade war with China plays out may have a bigger impact on the strength of the US currency and perhaps wool prices in the medium term.