LAST week saw a solid result again for the wool market, which is currently defying the usual pattern of easing during the August/October period when volumes increase.
A slightly easier currency environment together with buyer appetite for good quality wools brought about an 11c/kg rise in the eastern market indicator (EMI).
In US dollar terms the market eased by 5c and in Euro prices were 3c lower, while Chinese domestic buyers saw a kilo of Australian wool cost slightly less in RMB (Chinese currency).
Buyers were very keen to purchase the better, tested wools on offer in the east coast only sale last week and discounts for strength or VM fault have increased slightly over previous weeks.
All of the AWEX MPG’s for Merino fleece increased by around 15c with the better wools increasing by up to 30c, and the faultier lots being more or less unchanged. Crossbred wools continue their recovery from the winter blues and added a further 10 to 20c for the week, while cardings were mixed.
Buyers overseas are a little perplexed about the current market given the state of downstream demand. Most topmakers and traders are finding their customers very reluctant to commit at this early stage of the new season, and it would be naïve to think that there is not some stock building up in early stages of the pipeline. It is far from a calamitous volume, but some indigestion is occurring.
Downstream buyers are hesitating to commit – as usual at this time of year – until they see some signals from retail, or they can see the market easing in its usual seasonal pattern and therefore extrapolate the curve forward to fix a price. Given that the futures market has seen 21-micron trade at 1430c - a discount to spot of only 30 odd cents – as far out as late October adds to their dilemma.
Auction volumes on the forward estimates are not huge by historical standards, but are actually up 15 per cent on the same three-week period last year.
So the wool market is facing an interesting juncture for the short term - stock levels are okay, but building, greasy wool volumes are significantly increased year on year. Retail signals are still unclear as the selling season has yet to officially open, but marketing campaigns and designer intentions for the longer term are buoyant and Merino is surging to the top of the fibre pile.
The market usually eases by around 10pc during the third quarter of the year, but the futures market is indicating very little change and some Australian exporters have been able to sell greasy wool forward as far as November at prices within US20c of current market.
It will no doubt be a nervous time for some traders, processors and market commentators in the next few weeks. Growers on the other hand have a relatively easy decision. Rather than trying to second guess the market, the world economy and the currency movements, simply take the money and concentrate on preparing next years clip.
With wool prices currently in the 90th percentile for the last five years, and most Merino fleece selling for 1000c/kg greasy or $1800/bale, most August/October sellers have not seen things this good.
No doubt there will be some in the industry, right along the chain who prefer to sit and wait, or to further analyse the market to gain (hopefully) those extra few cents advantage – and when you are a large processor buying up to 300,000 kg per week, a few cents does make a difference.
Trying to get a clear idea on the world economic scene at present, which will affect consumer activity at the end of the day, is certainly not getting any easier. In broad terms things seem to be travelling along fairly much the same as we have seen for the past few months.
Brexit has come and gone, without tipping over the UK or Europe, although there will be some painful adjustment in some areas in the coming months or years. Already we are hearing that UK woolgrowers will find it difficult to survive without their 60 odd per cent EU subsidy. The US economy continues to steadily improve, only encountering small speed bumps occasionally.
A key meeting on Friday US time, at the famed Jackson Hole in Wyoming will perhaps see Federal Reserve chair Janet Yellen provide some clearer understanding around the next interest rate increase. Although with every single word scrutinised so heavily by the world’s media, like most central bankers she will probably be very cagey.
Superfine: With a dedicated superfine sale taking place in Sydney next week, European buyers will be able to flex their muscles properly and provide a true indication of their intent for this season. It would be surprising to see them do anything but pin the ears back and go for it, given the relatively small volumes of super stylish wool produced these days.
Medium Merino: With the superfine wool dominating the Sydney catalogue medium merino offering nationwide next week will be a little lower than usual and this should support prices. In the longer term the market faces a decision wether to succumb to the usual seasonal pattern and ease by a few cents (30-50c) over the next month, or create a new pattern and remain strong.
Crossbred Wools: Most mills have been able to restock their empty cupboards now and so the Merino price movements will direct the price direction of crossbred wools in coming weeks.
- Bruce McLeish is Elders’ northern wool manager.