Another 8c shaved off Eastern Market Indicator | Elders

Another 8c shaved off Eastern Market Indicator

Wool
WOOL SALES: The market continue to grind lower with a further 8c shaved off AWEX's Eastern Market Indicator.

WOOL SALES: The market continue to grind lower with a further 8c shaved off AWEX's Eastern Market Indicator.

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The wool market continue to grind lower with a further 8c shaved off AWEX's Eastern Market Indicator.

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LAST week saw the Australian wool market continue to grind lower to 1952c, with a further 8c, or US15c, shaved off AWEX's Eastern Market Indicator.

This was despite a measly 32,000 bales being on offer, of which nearly 13 per cent were passed-in as prices failed to meet grower expectations.

AWEX's Northern Market Indicator also closed down 8c, to finish the week on 1989c. The 17 micron indicator closed on 2480c, 18 micron 2413c, 19 micron 2288c, and 20 micron 2259c.

With a decidedly lacklustre trading environment at present any lot that did not fit the specs required was generally overlooked, resulting in lower bid prices, and therefore a higher pass in rate. All the Merino fleece micron price guides were quoted up to 40c lower as continued offering of drought affected wools struggle.

As AWEX reported, only around 26pc of this year's clip has been appraised as MF4 or better, a drop of 15pc compared to the previous year, and no great surprise to growers, or the trade. As buyers struggle to find firm orders to operate with, they are having to be selective about the wools they purchase and the results showed in the final quotes for the week.

Crossbred wool, despite peaking in terms of price resistance still provides a viable option to fill a processing mill with lower cost, less risk product. As some mills struggle to maintain current production capacity, many are obviously filling the gaps with these cheaper wools.

The fake fur business has slowed to almost a standstill, and although stock of crossbred top is not yet building, the bubble for this sector is getting very over-inflated. - Bruce McLeish, Elders

The fake fur business has slowed to almost a standstill, and although stock of crossbred top is not yet building, the bubble for this sector is getting very over-inflated.

With still no resolution in sight for the South African foot and mouth disease impasse supply of Merino wool remains a key factor for the next few months at least.

The Chinese and Russian greasy wool is being harvested at present and will find its way to processing mills over the next three months, which will alleviate the supply concerns for some mills at least. This may be the trigger to deflate the crossbred balloon, with Russian wool typically selling for 65pc of the Australian price - which is where the current 26 micron price guide sits in relation to the 21 MPG.

Knitwear, despite some angst around price resistance, is enjoying a reasonable season. Plenty of blending is no doubt occurring, but sales of the traditional knitwear wooltop are being made well into the new season at not far off current market prices.

All the talk last week seemed to be about President Trump's tweets around the trade negotiations, and the lack of progress - at least in his opinion. The negotiating tactic may be sound, or may backfire spectacularly, but it certainly got people everywhere to sit up and take notice.

Talks are continuing in Washington, and President Xi fired off a letter to President Trump, presumably to smooth the waters a bit. While most people are still confident of a deal being reached, there is still the real prospect of a 'no deal' situation and tariffs cranking up on $200 billion of Chinese imports to the US.

These higher prices would inevitably be passed onto consumers, as according to the experts many businesses absorbed the previous 10pc hike, but would be forced to pass on the 25pc if it comes to pass. The inflationary effect, or growth limiting repercussions on the US economy could easily be blamed on China, but it is not what the US masters want in the short term either.

Back in China, businesses are bracing themselves for possible fallout, but at the same time expecting that their government would ratchet up more stimulus packages if needed. Already last week the Chinese Central Bank further decreased the reserve ratio for small and medium banks, which will provide an immediate boost for business, but does feed a longer-term problem of bad loans in the already stretched economy.

The trade negotiations may be taking place behind closed doors, but with such global attention focused on the outcome, the pressure for a resolution is immense. Given the stoic nature of Chinese government officials, and Mr Trump's hand-picked negotiating team it is not difficult to imagine blending the two would be similar to mixing oil and water. Still, there seems to be a genuine desire on both sides to get something done, so hopefully we will not end up with a Brexit-like saga with no end in sight.

So, for the wool industry it could be a wait and see scenario. More likely, however, rather than watching and waiting for something that none of us can control, the smart operators are forging ahead. There are still so many positive issues on the table, not just for Merino, but even the broad wool guys are feeling a bit more enthusiastic at present.

The recent IWTO conference highlighted sustainability and traceability as key factors or concepts which are being explored right along the chain. While there is some dissent over who should ultimately fund the traceability schemes, commercial reality will ultimately determine the outcome. It will also eventually determine which of the current plethora of schemes are viable and add real value to the industry - not all of them will pass the test, but the wool industry is pretty good at sorting out the pretenders from the players in this regard.

In the meantime, with some reasonable falls of rain across much of the southern part of Australia the diesel jockeys are hitting their straps. The wool market will continue whilst they go around in ever decreasing circles, and with only around 30,000 bales expected to be on offer for the next three weeks, those mills in China who are currently sitting on the fence may be encouraged to make a decision. The futures market is still indicating a solid floor to this market, around a dollar below current spot, so that at least provides some forecasting certainty for growers.

- Bruce McLeish is Elders northern wool manager.

RELATED STORY: Wool market down another 7c to 1936c.

The story Another 8c shaved off Eastern Market Indicator | Elders first appeared on Queensland Country Life.

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