Category: Wool

Low supply remains a key issue in the greasy wool market, with the uncertainty of projected production for 2019 easily leading to various views on what is likely to happen. For the supply chain this uncertainty is magnified by language and cultural differences. This article takes a look at the latest AWTA core test volumes for February.

To illustrate the uncertainty of greasy wool production, search the internet for good merino wool supply data for Russia, China and South America. You will be hard put to find up to date historical production data, let alone reliable production projections. In Australia our historical production data is excellent (https://www.awtawooltesting.com.au/index.php/en/statistics/awta-analytics ) and while production projections are better than in other parts of the world there is plenty of room for improvement.

In Figure 1 the year on year change in volume for the past month and past three months by micron category for AWTA core test volumes (farm bales) is shown. The changes are in line with those seen since the early spring; more fine merino wool and less broad merino wool, with similar changes in the crossbred categories.

Figure 2 repeats the analysis of Figure 1 but for longer time frames. The season to date volumes for a range of micron categories is compared to the previous season and for the average of the past five seasons (all data used is July to February). The fall in broad merino volumes shown in Figure 2 is looking like it is becoming a structural change with 21 micron volumes down by 40% on the 2017-18 season and also compared to the five season average.

To summarise these changes in supply Figure 3 shows the average merino fiber diameter sold at auction for the past decade. The fiber diameter stepped down in 2012-2013 then stabilised through to 2017 roughly in the range of 19.1-19.3 micron before stepping down again in the past year. The average merino fiber diameter in February was a low 18.5 micron.

Now back to the wool supply chain. Put yourself in charge of mills which use various micron categories of wool, especially the 20-22 micron categories. What do you plan for in terms of purchases in the coming 6-12 months? Do you punt that supply will partially recover or do you assume broad merino volumes will remain at low levels? This is why uncertainty about production in 2019 is unsettling.

Key points:

• While February AWTA volumes were “only” down by 6% the trends evident since the spring continued.
• 20-23 micron volumes continue to be well below earlier period volumes.
• The average merino fibre diameter reached a low of 18.5 micron in February.
• The supply chain faces some difficult decisions in the coming year with regards to broader merino supplies.

What does this mean?

AWTA data shows a continuation of trends seen since the early spring. In many seasons volumes vary by relatively small amounts, but 2018-2019 is a season when there has been a big shift in production which will require the supply chain to think hard about supply in the coming year and seasons. The drop in the average merino fibre diameter is a good illustration of the marked change in production.

The forwards market dropped off to measly pickings this week with only four trades agreed, and one of those was for coarse wool. This is in stark contrast to what we saw through February and even in comparison to last March forwards figures over the last three years.

In the fine wool category, one trade was dealt for 19 Micron in June for 2280¢. In the medium wool category, two trades were dealt for 21 Micron in June, both at 2250¢. In coarse wools, one trade was dealt for 28 Micron in May at 1,050¢.

The Aussie Dollar has come steeply down over the last two days, which would usually see more interest in the forward market from overseas buyers. Physical auction prices are still at record levels, despite cooling slightly this week. The question is whether this week is just an anomaly, or will we see less trades dealt through the rest of March, even with a correction of the AUD?

After 8 weeks of consecutive rises in the wool market, producers responded with a large offering which resulted in a clearance to the trade of 44,800 bales.

The opening sales in Melbourne followed the weak finish in Fremantle last week. However, by the close on Thursday, it was a positive sentiment, with all centres posting gains on Thursday.

The Eastern Market Indicator (EMI) eased over the week, falling 11 cents by the end of the week to 2,016 cents. The Au$ was again slightly weaker also. The EMI in US$ terms was lower, down 10 cents to end the week at 1,441 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) had corrected late last week, so this week it lifted a further 16 cents to end the week at 2177 cents. This is now the highest level since September2018.

48,948 bales were offered for sale this week, with the trade clearing 44,846. This is 5,400 bales more than last week, a sign of confidence from buyers and a signal that growers are pleased with these levels. Only 8.4% or 4,102 bales passed in.

In the auction weeks since the winter recess, 943,537 bales have been cleared to the trade, 190,651 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 7,061 bales per week fewer.

The dollar value for the week was an impressive $99.27 million, for a combined value of $2.24 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,215 per bale across all types.

Crossbred types were mixed, 28 & 30 MPG were cheaper of last weeks record levels, while 26 & 32 MPG’s were up 10 – 20 cents.

The week ahead

According to the AWEX roster, the next week is another solid offering of 46,000 bales predicted, a big increase on last weeks estimate. The roster then drops sharply with 38 & 37,000 bales rostered for the next two weeks.

The tightening supply on the horizon should see the market activity remain robust, at least for the foreseeable future.

If we were to think of what “black swan” events might impact the wool market in 2019, Foot and Mouth Disease (FMD) outbreak in South Africa (SA) would not have been high on the list.

This, however, has been the case as this week China decided to bypass SA wool auctions, leading to Cape Wools SA deciding to suspend wool sales this week.

This decision was on the back of an outbreak of FMD identified in January in the Vhembe district in Limpopo.

The Eastern Market Indicator (EMI) surged on opening in Melbourne on Monday, gaining 59 cents by the end of the week to 2,027 cents. The last time it settled above 2,000 cents was in October 2018. The Au$ was again slightly stronger up 0.57%. This resulted in the EMI in US$ terms was also dearer, up 50 cents to end the week at 1,451 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) was also pumped by the events across the Indian Ocean, rising 31 cents to end the week at 2161 cents. This is also the highest level since October 2018.

42,029 bales were offered for sale this week, with the trade clearing 39,447. Again, growers were impressed with the market and passed in only 6.1% or 2,582 bales.

The dollar value for the week was $83.56 million, for a combined value of $2.14 billion so far this season.

In the auction weeks since the winter recess, 975,539 bales have been cleared to the trade.

All types benefited from the strong market, however later in the week there was evidence that buyers may have been over exuberant and markets retreated from the peaks of Wednesday.

The week ahead

According to the AWEX roster, the next week 49,738 bales are predicted, with a designated Australian superfine sale in Sydney. This is a significant jump up from volumes rostered last week as strong prices are enticing sellers to come forward. 38,813 and 36,460 bales are rostered for the next two weeks.

While it is disappointing for our wool producer friends in South Africa, the continued uncertainty around China’s intentions should see our market at least sustained at these levels in coming weeks.

Last week we tipped more activity on the forwards market in the coming weeks. What we didn’t expect, was the driving force behind the spike to come from South Africa. With China suspending all greasy imports from SA, overseas buyers have pounced on the Australian market to secure supplies through this uncertainty.

Sixteen trades dealt in total over the week, despite a lift in the AUD to 0.716 in US terms.

In the fine wool category, 19 micron wool traded at 2,310¢ for May 2019. Contracts for October 2019 dealt in a wide range between 2,190¢ and 2,260¢, while November saw deals struck at 2,200¢ and 2,225¢.

Sellers were happy to look well ahead to lock in some prices. February 2020 contracts traded at 2,200¢ for the 19 micron. Deals were also struck for October and December 2020, and even January 2021, at an agreed price of 2,075¢.

In the medium fibre category, we saw 21 micron at 2,290¢ for February 2019. June 2019 landed two deals at 2,240¢ and 2,260¢, while October and November traded at 2,150¢.

The drought is showing its effect especially in the northern selling centre (Sydney), where a very small offering of 7,500 bales last week met with strong competition.

The south and western selling centres provided the bulk of the offering with 23,000 & 9,500 respectively, while the solid demand was widespread across all centres.

The Eastern Market Indicator (EMI) gained 24 cents to accumulate a 57 cent rise this calendar year, ending the week at 1,968 cents. The Au$ was again slightly stronger up 0.4%; the EMI in US$ terms was also dearer up 21 cents to end the week at 1,401 US cents (Table 1).

In Fremantle, the Western Market Indicator (WMI) continued to strengthen, rising 29 cents on the back of a solid performance since December last year to end the week at 2130 cents.

40,000 bales were offered for sale this week, with the trade clearing 38,030. Again, growers were impressed with the market and passed in only 5.3% or 2,135 bales.

It must be a strong market as Fremantle had a low pass-in rate, in fact on the final day 97% of fleece wool in the west was cleared to the trade providing the lowest pass-in rate since September.

The dollar value for the week was $83.28 million, for a combined value of $2.06 billion so far this season.

In the auction weeks since the winter recess, 864,304 bales have been cleared to the trade, 212,117 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 8,484 bales per week fewer.

All types benefited from the strong market, 28 MPG up 50 Cents for the week in Melbourne, while Skirtings and with the Cardings indicators all had a good week to end dearer across the board.

The week ahead

It is with some degree of confidence that we can look forward to the next few weeks at least. According to the AWEX roster, the next week 42,400 per week are predicted, with 35,000 and 36,000 bales the next two week.

Buyers are filling orders as best they can with limited offerings, especially noted is the lack of low VM, high N/KTex wool styles which continue to be highly sought.

An interesting trend has emerged this week in the auction market, where we’ve seen continual heightened prices across all micron categories. When coupled with the Aussie dollar on a continued downwards trend, one could expect that the forwards market could see more and more action in the coming weeks.

In the 18 micron category, one trade was dealt for June with the agreed price of 2350¢/kg.

In the 19 micron category, six trades were dealt. One was agreed for next month for 2285¢/kg. Two trades were dealt for May between 2240¢/kg and 2250¢/kg. Two trades were made for later in the year, November and December both agreeing at 2125¢/kg. The remaining trade was made for February next year for 2085¢/kg.

In the 21 micron category, two trades were dealt for April, one for 2200¢/kg and the other for 2220¢/kg.

While the Aussie dollar did rally slightly at the end of the week, the downward trend is still evident.  Throughout the time that this remains the case, activity from overseas buyers should be higher. The forward market has been very active for several weeks now, generally ignoring the fluctuating Aussie dollar value. This could hint that supply might still be a concern looking into the near future, but also could reflect an overseas comfort with the broader picture of Aussie dollar levels and trends.

For this weeks’ article investigating wool supply issues in the north see here