Category: Wool

Despite the lower offering this week buyers still happy to cherry pick the broadly softer market with the greatest impact felt by the finer fibres. The benchmark Eastern Market Indicator (EMI) shedding 23¢ to 1472¢/kg clean, although the softer A$ combining with the market downturn to see EMI in US$ terms drop further, down 34¢ to 1088US¢/kg. A lesser fall for the Western market noted with the WMI dropping 16¢ to close 1504¢/kg clean.

17 to 19-micron fleece registered falls of 55-85¢ across all three selling centres. Melbourne the only auction to offer some finer 16.5-micron wool, but the single source not enough to protect it from registering the largest falls this week closing 113¢ softer to 2135¢/kg clean. Medium wool classes a bit of a mixed bag with 20-25¢ falls in the 20 microns in all centres, 21 microns ranging from a 12¢ loss in Fremantle to a 6¢ gain in the South, while 22-23 mpg wool saw gains from 1-14¢ recorded. Cross bred wool saw Southern 30 mpg shedding 30¢ but the remaining classes posting flat to slight gains of less than 10¢.

Pass in rates remain higher in the West and the national pass in rate dropping slightly on the week to 12.2% as 24,976 bales were sold out of a possible 28,459. This is the lowest bales sold since late June 2016 although compared to this time last season bales sold this week were 5.4% higher suggesting the relatively higher prices aren’t deterring buyers too much.

The week ahead

Supply continues to tighten as we head towards the Winter recess and there are no sales listed in the West next week so bales on offer will drop to 25,278. Melbourne and Sydney are selling on the normal Wednesday Thursday roster. Bales offered set to recover in Week 50 as Fremantle resume selling to reach nearly 33,000 before dropping back sub 25,000 the following week.

A softer result across the board this week for all categories in all three centres as buyers take advantage of increased VM to discount heavily. The EMI dipping back under 1500¢/kg clean after shedding 27¢, although out West price falls were of a lesser magnitude and the WMI managed to hold above 1500¢, closing 15¢ softer on the week to 1520¢/kg clean.

Largest magnitude falls were noted for the finer microns with price decreases between 50-100¢ noted.  Medium fibres posting declines in the 10-40¢ range, while crossbred fleece just 5-10¢ softer. Southern 28-micron and Cardings in all centres the only categories to record slight gains.

Growers responding to the falling prices by lifting pass in rates, particularly in Fremantle where 23.1% was passed in. Nationally 29,091 bales were sold, out of a possible 34,270, resulting in a pass in rate of 15.1% and suggesting that growers are comfortable to bide their time for better prices.

The general view among growers appears to be that supply is tight and mills don’t have much stock in the pipeline so there seems to be a reluctance to chase a falling market. Clearly, in the short term the volume of bales on offer are expected to contract further. However, over the longer term an eye needs to be kept on the trend in demand, as the risk is always there that overseas buyers adjust down their purchasing requirements to reflect the anticipated lower supply.

The week ahead

Next week will see all three centres in operation on Wednesday and Thursday with just over 30,000 bales rostered for sale. The week following bales on offer are expected to be the lowest scheduled so far this season at 25,820 (potentially a clue to why growers are comfortable riding out the price decline).

It was a tale of “three” markets – the Sydney sales were relatively stable, Melbourne was weakest while W.A. was mixed to stronger depending on the micron. The EMI closing the week at 1522¢, a fall of 12¢, however the WMI rallied on the back of an offering dominated by 20 MPG and broader wool to rise by 8¢ to close at 1535¢.

We saw the effect of the Washington/Trump shenanigans which took the confidence out of US markets and resulted in a weaker US$, and by default a stronger A$. The effect on the market was for the EMI to rise in US$ terms (plus 8 cents), but fall in A$ terms (minus 12 cents). The Trump factor causing a 1.5% gain in the A$ over the week to see it finish yesterday at 74.6US¢.

At this time of the year we see increased levels of Vegetable Matter; it impacted most on the skirtings market this week with low V.M. wool tending dearer however high V.M. types were irregular and tending cheaper.

Concerns are emerging about future supply, with brokers reporting that in some regions it has all but dried up. This is making exporters and processors nervous, especially those looking to secure fine wool with good specifications.

The week ahead

Looking ahead we have three successive weeks of sales with bales on offer below 38,000. Next week 37,348 bales are scheduled and all three centres are in operation on Wednesday and Thursday. Subsequent weeks see 33,697 bales rostered on week 48, dropping to 26,150 for week 49.

This tight supply should maintain the market levels, although as we have seen this week currency moves can impact.

A tentatively positive start to the week at Wednesday’s auctions, but the small gains made were given back plus a bit extra on Thursday. The EMI closing the week at 1534¢, a fall of 10¢, and the WMI slightly heavier falling by 33¢ to close at 1527¢.

The market opened to solid demand on Wednesday but nervousness crept in on Thursday to see the market in general close below last week’s levels. Eastern prices 5-35¢ softer while the West saw a bit more of a slide, with 15-70¢ falls registered. A reduced offering of bales for sale, just over 38,000 bales came forward this week, however weaker demand saw the pass in rate jump this week to 16.1% with 31,915 bales sold.

With the market entering the winter trading period we thought we would take a retrospective look at the wool market. Figures 2 to 4 show the market movements compared to May 2016 (last year) and also to May 2012 (5 years ago).

Firstly currency; while it has hardly moved over the past 12 months, it is 27 cents or 36% lower than five years ago. This is reflected in the EMI levels; in A$ terms the market is higher compared to both periods, while in US$ terms it is still yet to reach the 2012 level while sitting 21% above last years US$EMI.

Taking a look at the MPG’s, Merino wool reflected in the 21 MPG & finer types is stronger either comparing to 2016 or 2012. Cardings are 10% higher than last year, but a massive 70% above 2012 reflecting the increased demand for double sided fabric.

Compared to last year, in US$ terms (Fig 4) all bar crossbred types are stronger, particularly the finer types with 17 MPG up 50% year on year. The story is a little more mixed when we compare against 2012 prices in US$’s, and while 19 MPG & finer as well as Cardings are now above 2012 levels, 20 & 21 MPG were higher back then. The A$ in 2012 was trading US$1.01 cents and clearly impacting on the buyers.

The good news from this is that while wool grower returns are very good, wool to our customers is not expensive compared to recent history; this is a good thing. In fact, the recent high for 19 MPG in US$ terms was June 2011; the Southern 19 MPG was quoted around 1750, but at that time the A$ was strong at US$1.05 resulting in a US$ 19 MPG price of 1820 – compared to the current US$ price of 1460 which converts to A$19.77 in the market when the current A$ level is applied.

The week ahead

Looking ahead we have three successive weeks of sales with bales on offer below 38,000. Next week 36,343 bales are scheduled and all three centres are in operation on Wednesday and Thursday. Subsequent weeks see 37,680 bales rostered on week 47, dropping to just over 34,000 for week 48.

A solid two days trading as exporters re-entered the market this week to see both the Eastern and Western Market Indicators sitting comfortably above 1500¢. The EMI closing the week at 1544¢, a gain of 43¢, and the WMI slightly firmer at 1560¢, up 52¢.

Reports from the auction floors indicate indent buying by exporters fuelling the rally across most categories of fleece for both trading days as mills continue to operate on a hand to mouth basis. Fine to medium microns up between 40-100¢, while even some categories of coarse fibre enjoyed a lift of 10-25¢.The key question for the short term is whether overseas orders will continue to flow through at these levels and prompt continued exporter buying into the next few weeks.

Historically the 21 micron class has struggled to hold above 1500¢ for any decent length of time but recently this resistance level has continued to be probed – figure 2. Brokers indicate that there is plenty of space in the wool stores at the moment, so supply remains an ongoing issue. This factor, combined with a continuing softening A$, sets the tone for the chance for further upside in the coming weeks. Clearly, as the chart shows in USD terms overseas buyers have paid higher levels for 21-micron wool in the recent past, so there is the capacity for them to still bid local prices higher.

A reduced offering of bales for sale, just over 38,000 and the aggressive demand saw the pass in rate fall this week to 4.5% with 36,567 bales sold – figure 3.

The week ahead

Offerings over the next few weeks continue to decline, with all of the next three sale weeks listing bales offered under 40,000. Week 45 is operating in all trading centres on Wednesday and Thursday and has 39,253 bales listed. Weeks 46 and 47 will see supply tighten further with 36,100 and 37,650 bales offered, respectively.

An increase in bales offered this week as the wool market clears out some of the Easter recess build-up of stock took some of the heat out of the medium fibre price action. However, reports that there is limited supply left in store and keen export buyers still sniffing around meant the price correction was limited.

Indeed, most of Wednesdays losses in the finer end were recovered during Thursdays trade to see the 16.5 to 19 micron classes close the week slightly higher in the north and only marginally softer in the south. Microns less than 19 mpg in Fremantle the worst performers in the finer categories, down around 10-15¢.

Medium wool making up the lion’s share of the correction in price across all three selling centres with 19.5 to 23 micron wool posting declines ranging from 10-40¢. Coarse fibres remaining mixed, with price movements on the week fluctuating between gains and losses of less than 5¢.

Just over 52,000 bales were listed for sale this week and the softer prices on Wednesday saw the pass in rate above 20% in the West. However, by the end of Thursdays session prices had stabilised and the pass in rates lowered across all three centres to close the week at 10.8%, with 46,565 bales sold – figure 2.

The week ahead

The anticipated tighter supply reflected in next week’s bales scheduled, with just under 40.800 listed for sale. All three centres are operating with auctions on Wednesday and Thursday and the reduced offering combined with a softening A$ should see demand keep prices firm.

Last August Mecardo reviewed the supply of short wool in the clip and drew the conclusion that overall the proportion, while varying, did not have a definable trend. This time around we look at much shorter term data and drill down by micron category to see what changes are present in the current market.

In the earlier analysis (Is there more short wool in the clip August 2016) the focus was on the overall proportion of short wool within the Australian merino clip. The current market has a raft of changes in supply going on, which vary markedly between micron categories. This is a function of different seasonal conditions between regions, with wool from the various regions having quite different characteristics. The article from last week (Where is all the broad merino wool coming from) was based on this principle.

Figure 1 shows the proportion of short (50 to 69 mm staple length) merino fleece wool sold during the March quarter this year and in 2016. The volumes are broken up by micron category. These categories are set roughly to match the old Chinese wool types, with a total merino fleece proportion shown on the right hand side. Generally the proportion of short fleece wool early in the calendar years has been around 15-20% for 17.5-18.5 micron, 10% for 19.5-21 micron and higher for the broader merino categories. Overall around 13-14% of merino fleece sold is in the 50-69 mm staple length category.

Figure 2 is where the data becomes interesting. This shows the year on year change in volume for 50-69 mm length merino fleece wool by the micron ranges, for the January to March period. The changes vary widely. There has been a lot broader short staple fleece wool sold in 2017. This fits with the analysis from last week of the broader merino micron volumes. It points to plenty of downward pressure developing in the market as it struggles to absorb increases in the range of 40% to 100% of broad short staple fleece wool. This explains some of the low quotes coming out of the market for wool in these categories.

Once again we are reminded that the analysis of wool supply needs to drill down to levels at which the supply chain operates. Mills do not source merino wool as such, but merino wool of certain characteristics. When the supply of wool of the characteristics changes relative prices in the market will adjust. The conclusion in August that there was no discernible trend in the supply of short staple merino wool, while correct, neglected to look at changes at a lower level. Figure 3 shows a similar analysis to Figure 1, except it is a snapshot from a decade earlier. The proportions of short staple wool are markedly different between the micron categories. They are a lot higher for fine wool and much lower for broad merino wool.

Key points:

• The proportion of short staple merino fleece in the clip varies between micron categories.
• The proportion is higher for broad merino categories.
• Broad merino short staple wool supplies are up by 40-100% in 2017 so far.
• A decade ago fine merino categories had the highest proportion of short staple fleece.

What does this mean?

The supply of short staple fleece has increased in broad merino wool during the past decade, and has picked up markedly compared to year ago levels. Price relativities will react to the increased supply by discounting the shorter staple wool, which may have implications for farmers planning shearing at shorter staple lengths.

Recent sales volumes and AWTA data have shown strong increases in the supply of broad merino wool in Australia. While the supply was expected to pick up on the back of improved seasonal conditions in 2016, the rise has been faster than anticipated. This article takes a look at where the wool is coming from.

Figure 1 shows the year on year change in auction volumes for merino wool from 15 through to 25 micron, in the January to March period for this year. The stand out change is the big (30-50%) rise in the 21 micron and broader merino categories. Fine wool volumes have also been ahead of year earlier levels but the small increases in the face of massive prices rises indicates there is not a lot of spare supply of fine merino wool in Australia.

The question is where is the extra broad merino wool coming from? As Mecardo showed in an article a couple of weeks ago (Merino means different things) around half of the broad merino production comes out of pastoral regions with the balance coming from cropping regions. Figure 1 shows the year on year change in the supply of 21-27 micron merino wool for the past three months by region, around Australia. One region stands out as contributing extra 21-27 micron wool in the March quarter. This region was the Great Southern from Western Australia. In recent years this region has been the dominant supplier of greasy wool to sale in the January through April period, accounting for 15-18% of sales by volume. This year the fibre diameter of wool coming out of the Great Southern has swung broader, so it has supplied nearly half of the extra 21-27 micron wool sold during the past three months. The Midlands, also from Western Australia, has helped as has northern South Australia and the pastoral regions running northern and east from South Australia.

As a check on this change, Figure 3 shows the year on year change in the volume of 12-18 micron wool sold by each region in the March quarter. The big swing to broader wool in the Great Southern region is matched by a big drop in 12-18 micron volumes. Notice the higher rainfall NSW regions have had increased fine wool sales this year, along with south-west Victoria (which was coming off a drought induced low base). The expected decrease in supply of fine wool from NSW has not eventuated, except for the western Riverina. Good seasonal conditions in 2017 (which has started in the Monaro) will be required to pull the micron broader in the regions, in order to lower the supply of fine merino wool.

Key points:

• Broad merino sales volumes have been some 30-50% higher in the March quarter.
• AWTA volumes correlate with the sales volumes.
• Half of the increase has come from Western Australia.
• Fine merino volumes have been maintained in the higher rainfall regions of NSW.

What does this mean?

The extra volume of broad merino wool (in the order of 30-50%) will continue to put downward pressure on broad merino prices.  Seasonal conditions in Western Australia (where half of the increase has come from) are shaping up in 2017 to support this increased supply. The chance of the 21 MPG breaking the 1500 cents barrier looks to have well and truly slipped away. NSW has maintained its volume of fine wool production in recent months, above expectations. The expected boost to fine wool prices from a drop in supply looks as though it will be weaker than expected.

This week the wool market carried on with the positive upward move identified towards the end of last week. Tuesday had across the board rises of 40 to 80 cents, while a further 30 to 60 cents was posted on Wednesday.

The EMI closed up a whopping 53 cents in A$ terms at 1512¢ while in Fremantle, the strong finish to the last week continued with a A$0.73 rise, the west closing at 1532 – Fig 1.

In US$ terms the EMI ended the week at 1134¢, plus 33¢ while the WMI closed at 1149, up 49 cents.

While the market in general benefited, it was the 21 MPG that was the stand out, with the market in Melbourne actually closing at a higher level than before the correction. This is quite remarkable given the increased supply of medium wool coming forward post the drought conditions of the past couple of years. Fig 2.

As reported on Mecardo, the increase for the first quarter of medium wool production is 30 – 50% higher compared to the same period last year. To see this section of the market rally is very positive for the future.

Wool growers responded over the previous two weeks of falling prices by passing in circa 20% as well as withdrawing wool from sale. This clearly supported the market and as a result buyers received orders to fill and as a result the market found support. This week the response was to sell into a rising market with only 5.7% Passed In.

Growers are in the driving seat (not often this is the case!!), as the shortage of any buffer stocks means sellers can confidently withdraw wool from the market and have little risk that better prices won’t appear later.  When combined with record income from any sheep or lamb sales (Mutton hits record) growers will continue to “play” the market; selling when the market rallies and holding out on any corrections.

The week ahead

The drama of prices in freefall over the previous two weeks was largely ignored this week as the reality of tight supplies across the pipeline overtook any thoughts of an overheated market.

With a general feeling that post Easter the market generally has a lift, it is a somewhat optimistic outlook for the wool market when sales resume.

Next week the market is in recess, while we have reports of around 50,000 bales listed for sale in the week beginning 24^th April over two days (Wednesday and Thursday).

The exciting wool market experienced over the past 6 months has now become a confused beast. Despite reports of a lack of supply across the wool pipeline, from farm woolsheds to processor mills, the market again spent the week in reverse. Interestingly, on Thursday the market shifted gears and rebounded to finish strongly.

The EMI closed down 43 cents in A$ terms at 1449¢ and also softer in US$ terms at 1101¢, down 50¢. In Fremantle, the later selling time and strong finish to the week resulted in an indicator less effected with a 29¢ decline in A$. terms for the week – Fig 1.

It was almost a tale of two sales for this week, on Wednesday the EMI & WMI lost 45 & 48 cents respectively, 18 MPG fell 96 cents and 21 MPG in Melbourne was off 55 cents -Fig 2.

The reversal on Thursday saw the EMI gain 2 cents, however the WMI finished plus 19 cents for the day with reports of a strong finish to the market. Gains were across the Merino combing section, 18 MPG plus 16 and 21 plus 19 cents in Melbourne.

Fremantle was stronger with 18.5 MPG finishing up 22 cents and 21 up by 31 cents.

Fremantle provided good entertainment, on Wednesday 33% of fleece lines offered were passed in, and withdrawals for the Thursday sale were significant.

It seems that the falls on Wednesday encouraged exporters to book business and when they returned on Thursday to a reduced offering we saw the resultant rally. This caused the pass-in rate to fall compared to Wednesday, in Fremantle for example the first day a total of 29% was passed-in, however the next day this rate fell to 11.4%. Also impacting was the withdrawal of 20% in reaction to the price falls of the previous day.

The week ahead

This has been the second week of a dramatic wool market correction, coming at a time of tight stock positions across the wool pipeline. That said, it was noted by one buyer that for the past month wool offerings have been increasing, so perhaps this was a test by processors to check the market.

Wool producers are not in any hurry to sell wool if the market retraces like this week, and conversely, they have been keen to sell wool as the market rallied.

While its risky making statements about the market level in the future, the fundamentals haven’t changed despite the market volatility of the past 2 weeks. Supply is tight and mills need to purchase.

Next week we have a reduced offering of 46,200 bales listed for sale with trading scheduled over two days.