Category: Wool

The three-week recess seemed to create pent up demand from the processors, with the larger offering and stronger A$ unable to dampen competition – the wool market had a good week. AWEX reported that buyers were bidding strongly from the outset to fill orders secured over the break.

As Mecardo reported in the last sale report prior to the market recess, demand is good and with growers seemingly selling as soon as wool hits the stores any improving demand will construe to create increased competition on the auction floor. This theme certainly continued this week.

The EMI rallied A$0.28, the WMI improved A$0.36 while in US$ terms the EMI increase of US$0.48 was significant.

While all MPG’s improved, it was the 19.5 MPG and broader that performed strongest including X Bred types. The 28 MPG is back above 800 cents for the first time in 12 months while it was September last year when the 30 MPG closed above the current 614 cents.

This strong auction market translated into strong bidding on the Wool Forward market with growers stepping in to secure good forward cover for the remainder of 2017, and trades secured into 2018.

With a larger offering (on top of a big offering pre-recess) and a season low pass-in rate of 3.9% (season average 6.3%), 50,300 bales were cleared to the trade. This is an outstanding result compared to recent sales patterns; the last time 50k bales were sold was in December 2016, and then you need to go back to January 2016 to see more than this number sold.

There was one negative in the market; the cardings indicators in all centres retreated against the general market trend to post. A small offering in Fremantle held the market steady, however in Sydney & Melbourne the Carding indicator lost 40 & 23 cents respectively.

The week ahead

The result this week gives confidence for the week ahead, and with the A$ seemingly having peaked we should see another strong result with all centres selling.

The smaller offering is a portent of things to come with less than 40k bales rostered per week over the next three weeks; this should assist the market to at least retain current levels.

The 2016-17 season saw a change in the air drive a change in the paddock for wool production, but how did this impact the market? While winter is here and the recess lingers for the wool market, our season recap continues – this time hitting rewind to look at the prices.

Considering the finale is always the main event, we’ve focused this market review on the last week of the season (July 10^th 2017). Table 1 compares the average market price for the last week of the 2016-17 year for Northern, Southern and Western market regions to that of the previous year. The closing market clearly favoured the fine microns this year with a price jump at an average of 34% across the 16.5 to 19 micron range for the Eastern markets and 24% for the West.

As outlined in our earlier analysis review, when the season in 2016/17 transitioned from the considerably dry conditions maintained over previous years towards wet, we saw the average micron broaden across the Australian flock. This shift in the clip lent to a return to premiums for fine fibres as supply thinned across the year (Figure 1).    Improved seasonal conditions also returned a good market price across the country for the mid fibres of 19.5 to 24 MPG. Looking at Table 1, we can see that the market prices were much more favourable for all three regions this year round, boasting an average increase of 8% from 2015/16 to 2016/17.

As expected, the overall production lift in 2017 coupled with recorded increase in fibre diameter across all states but NSW, meant that supply of coarse wools was a plenty and hence didn’t quite see the gains received by the rest of the market. Southern region prices for coarse fibres finished 12% lower than the same time last year, while the North saw a slight rise of 2%.

By comparison, the mid and coarse fibre market on the West Coast remained fairly stagnant, landing nearly right back where it ended 12 months ago. The market price was on average just 10c higher than last year for fibres above 19.5 micron.

It seems wool growers are selling as soon as the wool is shorn, with another large offering coming forward. Despite this, the market performed well despite receiving no help from a rising A$. AWEX report that W.A.’s unseasonaly dry weather has seen growers bringing forward shearing causing the increase in supply this week.

The increase in the Fremantle offering resulted in 46,400 bales offered, with 42,900 sold and 7.7% passed in.

The market was strong, although the finer than 17.5 MPG and the 21 MPG and broader were the leaders. In other categories, crossbred types experienced good price rises of 10 to 20 cents, however the Cardings indicator fell in all centres by 10 to 25 cents.

While the EMI lost 2 cents in the auction, the stronger levels of A$ quoted yesterday at US$0.77 meant that the EMI actually rallied US$0.15.

The sale result this week is a perfect result leading into the recess. Buyers were able to secure plenty of wool and buyers paid higher US$ prices. This sets the scene for exporters to visit customers over the recess and secure orders for the resumption of sales in a climate of optimism; always a much better position that when sales end on a downturn prior to a break.

A note about the crossbred rally this week; while all types experienced price increases it was the better prepared lots that were most keenly sought out. It pays to now spend some time on preparing crossbred wool in the woolshed, as this will either improve the price compared to poorly prepared lots or at the least increase competition.

The week ahead

The market now enters a three-week recess, with sales resuming on the week beginning 7^th August in Fremantle, Melbourne & Sydney.

Based on this weeks competition the market should open well in three weeks time, especially if the A$ can lose a little ground.

Again, the occasional, yet extreme demand for wool with good measurements (low mid breaks & good tensile strength) contributed to a mixed message out of this week’s wool market. The better types pushed the overall market to new levels while lower style wool battled to keep pace.

This week only Melbourne & Sydney were selling resulting in the smallest offering for the year at just over 22,000 bales. Buyers were active and purchased 21,104 bales although 5.4% was still passed in. The EMI improved A$0.27 for the week while the easing A$ resulted in a more modest US$0.12 lift.

Week–on–week comparisons showed that all categories (except 32 MPG) posted gains. However, in percentage terms it was again the medium Merino types that ended the week with the biggest lifts.

AWEX reported that the week just past was the lowest offering of Merino fleece types in over 8 years. This is reflecting the demise of Merino flocks over the recent time. As Mecardo has previously outlined, this is a concern for the long-term sustainability of the Australian wool industry as continued lower supply must translate into reduced processing capacity. Over time this will see wool continue to lose its position in the fibre market on volume. The challenge then will be to position wool as an even more niche product.

Impacting on the declining supply is the strong demand for sheepmeat resulting in lamb prices at record levels. As reported by Mecardo, with the big economies in Asia positioned to continue their appetite for Australian sheep & lamb encouraging sheep producers to continue their focus on meat this demand is likely to continue. Of course, a modern Merino flock is also taking good advantage of the high meat prices, so for those who have stayed the course with Merino sheep these are indeed good times.

The week ahead

Next week Fremantle returns to the selling roster and a larger offering of 37,000 bales is rostered – figure 2. It is with some confidence that wool growers should approach wool sales as a softening A$ and tight supply is encouraging wool processors to compete strongly.

The fragility of the wool market was evident this week in what was the final sale for the financial year where increased supply (Fremantle back selling again) and a rising A$ pushed all types lower however, the strong Crossbred types showed some resilience. The EMI shed some weight nearing 1500¢, down 26¢ to 1507¢ and also falling a more modest 4US¢ to 1154US¢.

The return of Fremantle resulted in 37,000 bales offered, a big increase from the smallest offering for the year last week.

The take home positive was in the overall result of the wool market for the year, with AWEX reporting that it was the highest season ending level on record. The average for the EMI in 2016 – 17 was 1401 cents, 147 cents (+11.7%) above the 2015/16 season average.

Again, it was evident that buyers became more selective with an increased volume of wool, and once again it was the lessor style and faulty types that were most effected. There is a strong argument that the poorer lines in the clip require the most attention when selling, strategic price reserves and advice from the selling broker will pay dividends.

The week ahead

Next week the market sees all centres selling with almost 52,000 bales on offer as growers bring forward wool that was held over from the last financial year.

Based on recent supply and price relationships this increased volume will test the market; and it will also probably mean that growers will respond by passing-in an increased number of bales.

Again, the occasional, yet extreme demand for wool with good measurements (low mid breaks & good tensile strength) contributed to a mixed message out of this week’s wool market. The better types pushed the overall market to new levels while lower style wool battled to keep pace.

This week only Melbourne & Sydney were selling resulting in the smallest offering for the year at just over 22,000 bales. Buyers were active and purchased 21,104 bales although 5.4% was still passed in. The EMI improved A$0.27 for the week while the easing A$ resulted in a more modest US$0.12 lift.

Week–on–week comparisons showed that all categories (except 32 MPG) posted gains. However, in percentage terms it was again the medium Merino types that ended the week with the biggest lifts.

AWEX reported that the week just past was the lowest offering of Merino fleece types in over 8 years. This is reflecting the demise of Merino flocks over the recent time. As Mecardo has previously outlined, this is a concern for the long-term sustainability of the Australian wool industry as continued lower supply must translate into reduced processing capacity. Over time this will see wool continue to lose its position in the fibre market on volume. The challenge then will be to position wool as an even more niche product.

Impacting on the declining supply is the strong demand for sheepmeat resulting in lamb prices at record levels. As reported by Mecardo, with the big economies in Asia positioned to continue their appetite for Australian sheep & lamb encouraging sheep producers to continue their focus on meat this demand is likely to continue. Of course, a modern Merino flock is also taking good advantage of the high meat prices, so for those who have stayed the course with Merino sheep these are indeed good times.

The week ahead

Next week Fremantle returns to the selling roster and a larger offering of 37,000 bales is rostered – figure 2. It is with some confidence that wool growers should approach wool sales as a softening A$ and tight supply is encouraging wool processors to compete strongly.