Category: Sheep

After four weeks of losses and continuing uncertainty as to the full impact of the COVID-19 effect on the wool supply chain, this week the market settled posting modest gains. The market has a range of differing circumstances; Merino wool with good measurements is sought after, while lower style types and crossbred wools are not receiving anywhere near the same interest.

The Eastern Market Indicator (EMI) lifted by 9¢ for this week to close at 1,179¢, while the Australian dollar was up 0.44¢ to US$0.676, which contributed to the EMI in US$ terms also rising by 11 cents to 764¢. The Western Market Indicator didn’t fare as well, falling 9¢ to close at 1,237¢.

Turnover this week was up slightly at $27.79 million or $1,303 per bale, taking the year to date value to $1,831 million.

The response to the stronger buyer interest in the market was the halving of the pass-in rate, this week down to 8.8%, resulting in 21,315 bales clearing, 654 more than last week. Contributing again was a large withdrawal prior to sale of 12% of the original offering. AWEX noted that the national offering is 10.9% lower when compared year-on-year.

The rises were across the board for Merino types, with stand-out rises of 40 cents plus for 16.5 MPG in Sydney, as well as the 18 MPG in Melbourne & Fremantle along with the 19 MPG in Melbourne. Crossbred types were generally 20 cents off the pace, while Cardings held steady in all centres.

The week ahead

Next week’s national offering is just 21,690 bales with Sydney & Fremantle only selling on one day while Melbourne will offer on Tuesday & Wednesday.

Unfortunately, the early strength this week did not continue to the close of selling, with Melbourne and Fremantle reporting an easier trend on the final day.

It is difficult reporting weekly on the continuing demise of the wool market, with price decline now seemingly a weekly occurrence. AWEX noted that at least the market has been able to continue “with all industry stakeholders working together to ensure that wool auctions continue”.

While this is certainly a good effort, allowing producers to get wool to market and exporters to buy, it is small consolation. In the ten selling weeks since the beginning of March, the EMI has fallen 390¢.

The Eastern Market Indicator (EMI) fell by 55¢ for this week to close at 1,170¢, its lowest close since 2015. The Australian dollar was down for the week by 1.02¢ to US$0.643, which caused the EMI in US$ terms to come off 48 cents to 753¢. This puts the US$ EMI at its lowest point in almost 10 years. The Western Market Indicator was broadly in line with the east, falling 64¢ to close at 1,246¢.

Turnover this week was $24.83 million at $1,201 per bale, taking the year to date value to $1,804 million. For contrast, in the same week last year the 28,500 bales sold returned $58.3 million at an average of $2,039 per bale. The year on year comparison of sales value is down a massive $1.1 billion impacting not only on growers incomes but on all sectors of the industry.

Despite the weaker market, the pass-in rate was lower this week at 18.5%, resulting in 20,661 bales clearing, 3,643 more than last week. Again a large withdrawal was evident with 11.8% of the original offering withdrawn prior to sale. Season to date there has been on average 27,990 bales sold per selling week. This is well down on the 32,800 average for last season.

Again the falls were across the board, with Merino types losing 30 – 87¢ and Cardings down on average 27 to 44¢. The note from the X bred section was again that poorly prepared clips we difficult to find buyer support.

The week ahead

Next week’s national offering increases slightly to 25,660 bales. AWEX report that due to limited quantities Sydney and Fremantle both will have one-day sales, Sydney selling Tuesday and Fremantle selling Wednesday, this is a move designed to avoid Melbourne selling in isolation.

It is now almost a weekly theme for the wool market to post lower prices, with high pass-in rates and pre-sale seller withdrawals contributing to low volumes purchased by exporters. Much of the blame this week can be sheeted home to the strong Au$ however this was no consolation for growers who again witnessed a tough market to sell in.

For April only 140,386 bales were offered with just 77,703 bales sold after 18.6% of the offering was withdrawn before sale and a further 19.0% passed in. For April the EMI averaged 1273 cents. Over the same period last year 143,000 bales were sold to the trade with the EMI averaging 1946 cents.

As a result of the depressed market there is a growing stock of wool in broker stores as reported by Andrew Woods on Mecardo, this is estimated to now be up to 11% of annual production.

The Eastern Market Indicator (EMI) gave up 47 cents for the week to close at 1,225 cents. The Australian dollar was quite strong rising by 2.26 cents to US$0.663, which supported the EMI in US$ terms, down just 2 cents to 800 cents. The Western Market Indicator also came back 48 cents to close at 1,310 cents.

Turnover this week was $21.92 million at $1,288 per bale, taking the year to date value to $1,778 million.

The pass-in rate was higher at 25.7% nationally with 17,018 bales cleared to the trade. 10.3% of the original offering was withdrawn prior to sale with Sydney & Fremantle selling only 3,606 & 3,775 bales respectively. Season to date there have been on average 7,023 bales fewer sold per selling week compared to last season.

AWEX reported that the falls were across the board, with Merino types losing 39 – 89 cents and Cardings down on average 24 cents. The 32 MPG fell to 271 cents, hitting its lowest point since AWEX reporting began in 1997/98.

The week ahead

Next week a national total of 26,924 bales will be offered with Fremantle selling only on Tuesday, Sydney Wednesday only and Melbourne on both days.

As if we needed any reminder, these are highly uncertain times and definitely not providing any levels of confidence to the wool market.

Key Points

• Covid-19 has seen the fall in wool prices accelerate, while sheepmeat values are still strong.
• The 19 MPG is at all-time lows relative to the ESTLI.
• Low returns from wool might see a renewed push to dual purpose and crossbred sheep.

The Coronavirus has seen plenty of volatility hit all markets, and wool and livestock have not been immune. Wool has copped the brunt of the fall, while sheepmeat values have largely held their ground. The flock rebuild is on, but the spreads between meat and Merino wool might influence what sort of sheep are added to the flock.

Wool prices have tanked in the last month, losing 18% to hit a three and a half year low. Wool prices are inherently cyclical, and this has once again been proven, with some help from the COVID-19 crisis.  Supply hasn’t increased, but demand has evaporated.

Lamb and sheepmeat prices are less impacted by cycles, with consistently improving demand seen over the last 8 years. Lamb demand may weaken with the COVID-19 crisis, but tight supply is currently seeing prices hold firm.

The difference in recent price movements has seen an all-time low reached for fine Merino wool prices relative to the Eastern States Trade Lamb Indicator (ESTLI).  Figure 1 shows the Southern 19 Micron Price Guide (MPG) and the ESTLI, and the 19 MPG premium over the ESTLI in percentage terms.

We had to estimate the ESTLI for recent weeks, but the results are unlikely to change much. Last week the 19 MPG was at just a 69% premium to the ESTLI, the lowest relative level on record. It has been rare for the 19 MPG to be lower than double the ESTLI, while in 2019 the average was 173%.

The 10 and 20 year averages are both between 170 and 180%, which has been enough to see the decline of the Merino wether, and to a lesser extent Merino ewes.  Crossbred sheep have replaced Merinos, and the current dynamic is likely to see this continue.

Figure 2 shows how relative prices affect modelled income per DSE. The model uses 5kgs of 19 micron wool with 72% yield for wethers, which are 1 DSE.  For Merino ewes, the numbers are based 4.5kgs of 19 micron wool, and 0.7 lambs weaned at 30kgs at 1.5 DSE. We know a lot of Merino producers do better than this but this is the national average.  Crossbred ewes are producing 4kgs of 32 micron wool yielding 66% and 1.25 lambs weighing 35kgs, but they equate to 2 DSE.

There is little arguing with Merino wethers having record low income compared to both Merino and composite ewes. Merino ewes meanwhile have rarely had income more than $10 per DSE lower than crossbred ewes, but that is where it sits now.

What does this mean?

With Merino wethers making well over $150 per head, it will be hard to justify holding onto them for the wool cut this year. Abundant feed in areas recovering from drought will help, but if the price spreads between wool and sheepmeat persist it will continue, and possibly accelerate, the move towards dual purpose or meat sheep at the expense of fine wool Merinos.

A majority of joinings had taken place before COVID-19 hit, as we aren’t going to see impacts on flock structure, and lamb supplies until next year. The lower wool price might help support sheep supplies, however, which are expected to be very tight this year.

It is now becoming clearer how the COVID-19 virus is impacting on the wool market. Bale clearance at auction is down with mills either not operating or at reduced capacity, finance of the wool pipeline more difficult, and retail demand uncertain or in lockdown impacting on garment orders.

There is an air of determination from the market, but an underlying nervousness pervades.

The market continued to contract this week with the Eastern Market Indicator (EMI) losing 20 cents for the week to close at 1,272 cents. The Australian dollar was weaker easing 1 cent to US$0.631, which pulled the EMI in US$ terms down 26 cents to 802 cents. The Western Market Indicator also came back 12 cents to close at 1,358 cents.

Turnover this week was $28.76 million at $1,357 per bale, taking the year to date value to $1,756 million.

The pass-in rate was lower at 15.2% nationally with 21,187 bales cleared to the trade. 17.5% of the original offering was withdrawn prior to sale easing the pressure on the market. Of note Sydney offered 4,696 bales selling just 4,067. This was the lowest Sydney offering since AWEX records began in1997/98 season. Season to date there have been on average 6,340 bales fewer sold per selling week compared to last season.

Coming in to the CV-19 crisis, retail sales of clothing in the major wool consuming countries were mixed.  As reported by NCWSBA, China consumption was the first to fall, down a massive 33% in January compared to year earlier figures. Apparelware is experiencing a worrying slowdown, with both online and offline sales for businesses the world over taking a major hit.

As consumers hold back on their spending, clothing brands of all shapes and sizes are forced to scale back production, and reimagine how they position themselves.

AWEX reported all Merino types were cheaper with the exception of the finest MPG’s and wool of better style and measurement which posted modest gains. The bulk of the Crossbred types were cheaper as were Cardings.

The week ahead

Next week a national total of 25,554 bales will be offered with Fremantle & Melbourne selling on Tuesday & Wednesday, while just 5,406 bales will be offered in Sydney on Wednesday only.