Category: Sheep

While the market again suffered a significant fall, the AWI commentary on the market noted that almost all of the damage occurred on day one of selling, with a more measured response from exporters on Thursday.

Since the peak of March, in four months the EMI has lost 261 cents, or 14%; while in US$ terms it has fallen 233 cents or 16%. Bales sold is also down, 84,500 or 15% less than over the corresponding period.

The Eastern Market Indicator (EMI) fell back a further 57 cents this week on top of the 41 cents fall of last week and closed at 1,766 cents. The Au$ was also weaker slipping below US $0.69 mark and as a result, the EMI in US$ terms fell 42 cents, ending the week at 1,218 US cents (Table 1).

The AWI market commentator lists exporter finance issues, trade & tarrif wars and Brexit as all factors impacting negatively on the market over the past four months.

On the positive side, the EMI has not been as low in US$ terms since October 2017, so for the processors who have stood back from the market the price now should be more attractive.

 Supply is well back, both in seasonal and year-on year comparisons causing exporters to run down inventories; so along with the fact that over the next 2 months Australia is the only market with any volume, if there is any move to replace stocks we will see stronger demand. These are all factors leading to the suggestion that we may see the market find support at these levels.

Only 19,072 bales were offered at Sydney & Melbourne, 9,068 fewer than last week with Fremantle again not participating. The pass in rate across the selling centres was 12.8% for the week, Although well down on last week’s 21.3% the low offering meant that 16,634 bales were cleared to the trade, 4,270 fewer than the corresponding week last year.

We looked back to 2015 and could not find a lower week of wool bale clearance, this could well be the lowest for 50 years or more!  In the auction weeks since the winter recess, 1,390,315 bales have been cleared to the trade, 278,830 fewer than the same period last year.

The dollar value for the week was $30.38 million, for a combined value so far this season of $3.150 billion.

The week ahead

Next week a combined offering of just over 30,800 bales is rostered across all selling centres. For the following weeks 35,200 and 35,500 bales are currently forecast.

It cannot be ignored that the wool market is weak. If we compare when the market was at 1750 cents in early 2018, the outlook is far less optimistic despite lower supply. Back then the thought was “the market can only go up”. 16 months later after running through 2,000 cents we are back where we started at 1766 cents, but with a far less optimistic outlook.

A quiet week in the forwards market with only two trades, reflecting the falling auction markets of recent weeks.

One trade was dealt in 19 micron wool for August and agreed at 2,050¢  One trade was dealt in 28 micron wool for August and agreed at 1,040¢.

It’s been a few weeks since we’ve seen the forwards market this reserved but it is to be expected in a falling auction market. Growers don’t generally lower their prices to suit a weak market, but hold for when it will eventually rise again. Until then, as prices fall in search for a base and the outlook looks less optimistic as explained earlier, we will likely see quieter forwards for some time.

Another week of low offerings, high pass-in rates and price falls.The retracement from the February peak is well and truly happening.

All categories were impacted with the exception of the better prepared crossbred lots, although these were in scarce supply.

The Eastern Market Indicator (EMI) fell back a further 41 cents this week on top of the 23 cents of last week and closed at 1,823 cents. The Au$ held steady for the week at US $0.691 and as a result, the EMI in US$ terms fell 39 cents in line with the Au$ movement, ending the week at 1,260 US cents (Table 1).

AWEX report the EMI is now 293 cents below the record of 2,116 cents it achieved in August last year and 198 cents lower than the same time last year, a fall of 9.8%.

Fremantle had to catch up to the East coast following its one week recess. This realignment hit hard on Wednesday with a generally lesser continuing fall on Thursday. It was a very small offering of just under 6,000 bales in W.A., however growers passed in 2,400 bales or 40% of the offering. This could be a record pass in rate, even for Fremantle.

An offering of just 28,140 bales came forward nationally, 6,300 more than last week with Fremantle returning. The pass in rate across the selling centres again was high, at 21.3% for the week, up on last week’s 15.5%. This meant that 22,160 bales were cleared to the trade, 11,300 below the corresponding week last year. In the auction weeks since the winter recess, 1,351,521 bales have been cleared to the trade, 274,560 fewer than the same period last year.

The dollar value for the week was $42.20 million, for a combined value so far this season of $3.119 billion. A simple calculation of $ value divided by bales sold gives us $1,904 per bale across all types for the week.

Crossbred wools also fell on both days with the exception of some of the better prepared fine crossbreds which were slightly stronger. Oddments were cheaper, although some lots with low VM attracted stronger interest, again these lots were few and far between.

The week ahead

Next week a combined offering of just over 19,000 bales was rostered across all selling centres. For the coming weeks 31,000 and 34,000 bales are currently forecast.

The past 5 weeks has seen almost 40,000 fewer bales cleared to the trade compared to the same time last year. It is with interest we await the usual Spring flush of wool to get a feel for the full extent of the supply levels that will be available for the rest of the year.

A very solid week in the forwards market with eleven trades dealt across the most popular MPGs.

Five trades were dealt for 19 micron wool, three for August agreeing at 2,035, 2,050¢ and 2,060¢. The remaining 19 micron trades were for September and agreed at 2,040¢ and 2,050¢.

Four trades were dealt for 21 micron wool. Two of those were for August, agreeing at 2,030¢ and two for October at 1975¢ and 1980¢.

One trade was dealt for 28 micron wool and agreed at 1,080¢ for August.

With auction prices plummeting, the forwards curve in the short term looks steeper than the last month or so. We expect it might change a few times before the market settles again.

After strong buying activity last week, this week we saw buyers retreat in what was the lowest offering since June last year with Fremantle not selling at all. The market fell back as buyers were cautious about filling orders due to the small offering and lower quality wool. In going over our records of bales sold (back to October 2015), this week and 2 weeks ago are the only times where sales on a weekly basis have been below 20,000 bales.

The Eastern Market Indicator (EMI) gave up 23 cents this week after gaining 54 cents last week and closed at 1,864 cents. The EMI has fallen 4 out of the last 5 weeks, with AWEX reporting it has lost a total of 96 cents since week 44. The Au$ again found some strength lifting almost 0.5 cents to US $0.697 and as a result, the EMI in US$ terms only fell by 7 cents to end the week at 1,299 US cents (Table 1).

An offering of just 21,787 bales came forward, almost 7,000 less than last week (note Fremantle did not sell). Growers again reacted against the easier market. The total pass in rate for the week was 15.5%, well up on last week’s 8.4%. This meant just 18,380 bales were cleared to the trade, 11,300 below the corresponding week last year. In the auction weeks since the winter recess, 1,351,521 bales have been cleared to the trade, 242,721 fewer than the same period last year.

The dollar value for the week was just $35.18 million, for a combined value so far this season of $3.077 billion. A simple calculation of $ value divided by bales sold gives us $1,914 per bale across all types for the week.

Crossbred wools also lost ground after a strong effort last week, losing 5- 10 cents, however the 30 MPG category was quoted slightly stronger. Oddments were cheaper, giving back the gains of last week. Since the Cardings peak of Sep 2018, AWEX report on average across the 3 selling centres Carding Indicators have fallen 571 cents.

The week ahead

Fremantle returns next week however a combined offering of just under 30,000 bales is rostered. The following weeks 19,000 and 31,000 bales are currently forecast.

Supply is always at its low point in Winter, however buyers and processors will be watching closely to see the extent of the supply increase and quality improvement in the Spring.

• The micron price curve from 15 through to 23 micron is extraordinarily flat at present.
• Change in supply has been the key driver of this move to a flat price curve.
• Fibre diameter is constantly changing in response to change in seasonal conditions.
• As fibre diameter changes, so too does the supply of different micron categories and consequently the micron price curve.

Last week the 19 MPG finished 5 cents above the 21 MPG, which is a very small premium.  In the bullish fine wool market of 1999-2001 many in the industry were carried away by the fine wool premiums, confusing a mix of cyclical factors as a permanent change in the prices structure of the greasy wool market. Given the poor performance of fine wool premiums since 2012 (with the exception of 2017) the risk is that the reverse of 1999-2001 could happen. This article takes a look at a key driver of micron premiums and discounts.

In Figure 1 the micron price curve for May 2017 and May 2019 is shown. The price curve is generated by setting the average 19.5 micron price to zero and comparing the other micron prices levels to it. In May 2017, fine merino premiums were high by historical standards, the opposite position to the current greasy wool market. Compared to 2017, the current market premiums for sub-19.5 micron have shrunk to negligible levels while the discounts for 20 to 22.5 micron have also shrunk to minimal levels. This has flattened the micron price curve.

In 1999-2001 a combination of favourable supply (less fine wool), a depressed apparel fibre market (man-made fibre and cotton prices were low for an extended period which dragged medium and broad merino wool to low price levels), a favourable fashion cycle which allowed fine merino wool to avoid low prices and finally a low exchange rate which helped boost the local price resulted in huge micron premiums for fine merino wool.

In the current market the reason for the flat micron price curve looks to be mainly a supply issue. Figure 2 compares the change in the two micron price curves shown in Figure 1 with the change in supply, by micron category, between May 2017 and May 2019. The graph tells the story. Where supply has risen, the micron curve has fallen and where the supply has fallen, the micron curve has risen. When looking into the future, keep in mind the fibre diameter of the merino clip is always moving in response to changing seasonal conditions so the pattern of volume change shown in Figure 2 will change and reverse at some stage. When the supply does change, expect price to react with the micron price curve changing accordingly.

Finally, in Figure 3 the actual micron price curves in cents per kg terms for May 2017 and May 2019 (from 15 to 24 micron) are shown. The price level for 15 to 17 micron has barely changed.  It is the broad merinos (20 to 23 micron) which have changed price levels dramatically, assisted by chronic under-supply since early 2018.

What does this mean?

Merino micron premiums and discounts are probably at their perigee. The fall in the average merino fibre diameter is shrinking, with a reasonable prospect of the fibre diameter starting to increase in the new season which would start to reverse the trends in supply seen during the past 18 months. From this the micron price curve will change once more, with micron premiums and discounts beginning to widen.

Another solid week in the forwards market, with 21 micron being the main MPG dealt.  One trade was dealt for 19 micron wool for August and agreed at 2,180¢. Four trades were dealt for 21 micron wool. One of those was for September at 2,080¢ and one for October at 2,050¢. Two trades were agreed for November at 2,050¢ and 2,075¢ respectively.  Two trades were dealt for 28 micron wool and were agreed at 1,100¢ and 1,130¢ for August.

We’ve seen the gap between fine and medium wools tighten in recent weeks, probably due to a higher supply of finer wools as a result of drought. Looking further down the track, if the rains keep falling, we’re likely to see the gap between fine and medium wools broaden again.

The wool market kicked back into gear this week as buying sentiment strengthened. A limited offering meant buyers were more aggressive with their purchasing to secure their requirement. All categories and microns felt the benefits. 

The Eastern Market Indicator (EMI) rose 54 cents on the week to close at 1,887 cents, nearly making up for last weeks 60 cent loss. There is still some way to go yet to climb back from the 3 consecutive weeks of a falling market.  The Au$ lifted this week to US $0.693 and as a result, the EMI in US$ terms rose by 46 cents to end the week at 1,307 US cents (Table 1).

The Western Market Indicator (WMI) gained 55 cents to 1,992 cents this week. Medium Merino wools attracted the most support. The largest increase being the 19 MPG in Melbourne lifting 80 cents.

Supply was again at low levels with the national offering of just 28,273 bales. With the market moving higher, growers were more content with their levels. The total pass in rate for the week was 8.4%, a dramatic drop from last weeks 28%. This meant 25,901 bales were cleared to the trade, which is in line with the volumes cleared this week of sale in 2018. In the auction weeks since the winter recess, 1,333,141 bales have been cleared to the trade, 252377 fewer than the same period last year.

The dollar value for the week was $50.69 million, much improved on last week. The combined value so far this season is $3.042 billion. A simple calculation of $ value divided by bales sold gives us $1,957 per bale across all types for the week.

Crossbred wools felt the results of strong demand, rising 45- 50 cents. Oddments also moved higher, with AWEX reporting that locks came under intense pressure as multiple exports competed for limited quantity which pushed prices up 30 – 40 cents.

The week ahead

Fremantle aren’t holding any sales next week, so the roster for Sydney and Melbourne is looking at a combined offering of just 23,619 bales. The following weeks 23,360 bales and 19,610 are currently forecast. While we usually see a dip in supply as we draw to the end of the selling season, this will add to what is already 12% less auction volumes this season to date compared to the same period in 2018/19.