Wool climbs to 1546c | Elders

Wool climbs to record 1546c


Sheep
ON THE RISE: Wool climbed to 1546c despite a number of unexpected moves across the globe during the week.

ON THE RISE: Wool climbed to 1546c despite a number of unexpected moves across the globe during the week.

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Wool climbed to 1546c despite a number of unexpected moves across the globe during the week.

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THERE were lots of unexpected moves across the globe during the week. A predictable announcement by the Federal Reserve on interest rates in the US saw the currency markets plunge, and the Australian dollar soar as a result.

The wool market would usually be tempered by such a move and see local prices react accordingly – conversely prices at Thursday’s auction followed the trend of the previous day and the wool market closed US43c higher. In Australian dollar terms the market managed a respectable 24c increase in AWEX’s eastern market indicator. Muted movements in the medium micron sector offsetting the superfine category which climbed by up to a dollar for the week.

The 21-micron Merino seems to be stuck at the previous resistance level of 1500c, and although the eastern 21-MPG closed at 1506c for the week, it is close enough to the line to say that resistance is holding sway. Crossbred wools paused for breath this week after five consecutive rises, and carding wools followed a similar path towards consolidation with virtually no change for the week.

AWEX’s northern market indicator closed up 31c on 1636c. The 17 micron indicator closed on 2318c, 18 micron 2235c, 19 micron 1944c, 20 micron 1638c, 21 micron 1509c, 22 micron 1431c, 28 micron 756c, and 30 micron 581c. AWEX’s indicative 185kg bale price for 17 micron is $2718, 19 micron $2335, 21 micron $1788, and 28 micron $890.

The question on everyone’s mind is ‘where to from here’ given the rapid and aggressive mindset in the superfine end of the market, compared to the rational, composed, but still relatively high prices for the rest of the market. Given the lead times involved in wool processing, it has always been difficult for a topmaker or a spinner to pass on current prices of the day to their customer. There is usually a lag of a week or two on a rising market – unfortunately this time buffer totally disappears when a market is falling.

Currently wooltops and some yarn are trading at prices equivalent to the greasy wool market of last week, or the week before – and how the market responds to this week’s new level will be an interesting facet to watch. Some traders are optimistic, having perhaps enjoyed three months or so of consistently rising prices, they hope the horse will keep on winning. Others are becoming decidedly nervous and many have returned to a strictly hand-to-mouth buying pattern again.

As mentioned last week, perhaps the wool market is beginning to seriously fragment into different sectors, and the superfine market may continue to march to the beat of a different drum. Unfortunately it will not be this simple, as the delineation between superfine and medium merino is not that clear cut, with micron tolerances, blending and different yarn counts meaning that there are more than one way to produce any single product.

However, the shortage in supply of wools finer than the average Australian Merino, currently 19-micron, and the accompanying demand created by the plethora of new Merino products on the market and added to by the shortage of Cashmere this season, it may be enough to maintain or even drive the market higher.

The most optimistic in the trade certainly hope this is the case, as do many growers with wool still walking around the paddock on sheep. But there is a growing chorus of voices in the trade saying enough. At least a pause for two to three weeks in order to let top and yarn prices to adjust and consolidate would be welcomed by all. The alternative may well be the all too familiar sound of a balloon bursting, which nobody from grower to retailer really want to see-or hear.

With the much stronger local currency the 21-MPG actually rose by US29c this week, compared to a rise of only 6c in local terms. At US1156c/kg the 21-micron type is “high enough” according to many in China. This is the same level, at which the market peaked in 2013 and 2015 so again a period of consolidation around current levels would significantly decrease the risk of a correction in coming months.

There is still good demand in China for the medium micron types as this makes up the bulk of their normal usage, and with some of the products being made in China these days there is arguably less seasonality than when it was purely a suits and sweaters market.

Given past experience of a falling market, that almost always falls faster than it went up, so if the bubble does burst it would be ugly. However, that is not to say it will happen anytime soon, but growers and processors need to be aware of the possibility and the more astute are taking actions to hedge against this scenario. Although the forward market has some discount factored in, and minimum price contracts are not attractively priced given the current volatility, selling 18 micron in the often ‘-dead’ period of May/June at a level of only a dollar under current spot prices could end up being a wise decision. Selling 21 micron wool at around $1800/bale for the spring would make most growers very happy – particularly if that ends up being the lowest price achieved for the 30 per cent of the clip that most should hedge.

Despite the ‘turmoil’ created on the markets when Janet Yellen did what she and the Federal Reserve said they would do, the US economy appears to be continuing on the road to recovery. Chinese demand is still growing at a good pace, and the outlook for commodities in general now looks promising for not only 2017, but 2018 as well.

China continues to sell its state reserve of cotton, and although this stock is old and of poor quality so that it has to be blended with superior product from Australia or the US, the cotton price is lifting simply because the stockpile is being reduced in an orderly manner. This can only be beneficial for the textile market as a whole, and synthetic fibre prices are unlikely to go anywhere except upwards in the next couple of years as the large manufacturers seek to restore margins that have been squeezed to almost nothing in previous years. Perhaps the wool market has once again set the trend for the rest of the textile world to follow.

- Bruce McLeish is Elders northern wool manager.

The story Wool climbs to 1546c | Elders first appeared on Queensland Country Life.

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