Category: Wool

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pass-in rate was lower at 15.2% nationally with 21,187 bales cleared to the trade. 17.5% of the original offering was withdrawn prior to sale easing the pressure on the market.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.

Originally this week was scheduled as the Easter recess, however, a decision was made to provide an additional selling opportunity for growers on the back of the malware attack earlier. After brokers encouraged clients only to offer if they were genuine sellers, 15.5% of the original roster was withdrawn resulting in just 18,097 bales making it to the auction.

While the early sales of the one day auction (Wednesday) were solid, by the end of the day the market had retreated, with Fremantle, as the last to sell, most affected. This resulted in just 3,113 bales of the 4,508 offered in W.A. selling, with a pass-in rate of 30.9%

The pass-in rate of 23% nationally meant that of the bales offered, just 13,917 bales cleared to the trade. This was the lowest offering since June 2009. Season to date there have been 228,000 bales fewer sold, down on average 6,340 per selling week compared to last season.

The Eastern Market Indicator (EMI) lost 9 cents for the week to close at 1,292 cents. The Australian dollar was strong, lifting almost 3 cents to US$0.641, which pushed the EMI in US$ terms up 31 cents to 828 cents. The Western Market Indicator also eased losing 14 cents to close at 1,370 cents. Turnover this week was $19.67 million at $1,413 per bale, taking the year to date value to $1,728 million.

Melbourne finer Merino types all posted rises, however, the EMI was dragged down by falls in the X Bred sections where falls of between 20 – 40 cents were observed. Cardings eased slightly except in Melbourne where a 30 cent fall gave back the improvement of last week.

The week ahead

Next week all centres are selling on Tuesday & Wednesday with 31,517 bales on offer. A stronger US/Aus$ rate is not helpful, but exporters appear to have sufficient orders to cope with the reduced offerings.

The wool market is showing similar resilience to the stock market; despite the obvious unprecedented challenges it keeps going. Like the ASX, it has bad weeks and good weeks, in the context of the global uncertainty this was a good week.

The positive response by all in the industry to reducing the size of the offering, and the openness to review the selling system was a sign of all things good for wool, at times of adversity the industry can rise up.

Of the original roster of about 44,000 bales, 24.7% was withdrawn prior to sale by growers, this produced a reduced offering of 29,495 bales. The pass-in rate fell to 13.3% nationally leaving just 25,581 bales cleared to the trade. This was almost 5,000 more than last week.

The efforts by brokers was significant in ensuring that only genuine sellers put wool to market. This had the double whammy effect of reducing the offering and therefore increasing the demand on the lots in sale, as well as increasing buyer confidence as they realised that the wool on sale was more likely to be sold.

The other significant event was the inaugural Online Open-Cry (OOC) auction. In an initiative of the industry CV-19 working group to have in place contingency options, Zoom video conferencing was trialled with great success. This will provide an industry accepted option should CV-19 restrictions escalate to the point where auctions are cancelled.

The Eastern Market Indicator (EMI) improved 14 cents for the week to close at 1,301 cents. The Australian dollar remained stable at US$0.613, with the EMI in US terms was up 8 cents to 797 cents. The Western Market Indicator also had a positive week rising 31 cents to close at 1,384 cents.

The lift was across all Merino types with rises of 4 to 70 cents, with Cardings generally unchanged except in Melbourne where a 33 cent lift was observed.

Crossbred types failed to follow the general uplift losing 12 – 26 cents across the 26 – 30 MPGs on Melbourne, while a small offering in Sydney reported as slightly dearer.

The week ahead

The sale next week is the additional sale rostered in what is normally the Easter recess. This was scheduled to assist processors get wool into their pipelines and to provide another opportunity for growers to sell.

There is only 21,523 bales offered nationally with selling in all centres on Wednesday only.

The stable market reported last week vanished quickly in sales this week as buyer confidence evaporated. Border closures in India & Italy, along with difficulties obtaining finance during this difficult time caused buyers to dramatically reduce buying limits. By weeks’ end, the EMI recorded its largest fall in percentage terms since May 2003.

Last week buyers reacted to concerns about supply and the risk that sales would be closed, this now appears a premature move. This week it was the concerns about consumer confidence and the lack of orders from retailers for next northern hemisphere winter coming forward.

The Eastern Market Indicator (EMI) lost 97 cents on the first day of selling, with a further 58 cents on the final day to close at 1,287 cents, a loss for the week of 155 cents. The Australian dollar contributed to the carnage, rising 2.09 US cents to be quoted on Thursday at US$0.613. This cushioned buyers to some degree, with the EMI in US terms down 65 cents to 789 cents.

The Western Market Indicator followed suit, retreating 159 cents to close at 1,353 cents.

Of the original roster, 16.6% was withdrawn prior to sale by growers, this produced a reduced offering compared to last week of 37,713 bales. The pass-in rate surged to 44.9% nationally leaving just 20,780 bales cleared to the trade. This was 16,000 fewer than last week.

Sales are running 200,000 bales behind the same period last season, or just shy of 6,000 bales per week fewer.

This week the total sales value was $28.33 million (down $27 Million on last week) or $1,363 per bale also down $140 per bale compared to last week.

Crossbred types were not spared, losing 100 cents plus across all indicators, despite growers passing-in more than 50% after significant volume was withdrawn pre-sale.

The strong crossbred types were friendless, with the 32 MPG slumping 109 cents to 300 cents, the lowest level since 2008. Cardings lost 88, 152 & 74 cents in Sydney, Melbourne and Fremantle respectively.

The week ahead

Sellers remain keen to get wool to sale with 44,216 bales listed for next week and all centres again selling on Tuesday & Wednesday only.

What happens next week in the market is anyone’s guess, confidence is shot from the buyer perspective, however, it is assured that the 44,000 bales currently rostered won’t all be sold.

After trending lower for 18 months, wool prices would normally start to look for reasons to stabilise. That appeared to be the case in late 2019, but the occurrence of a pandemic (COVID-19) has added a further leg to the existing cyclical downturn in wool prices. This article takes a look at the latest step down in price.

It is helpful, if somewhat occasionally confusing, to look at wool prices in both Australian and USD dollar terms. Usually, they tell the same story in terms of trends and cycles. In the current market the views vary in terms of value, with the US dollar value (percentile if you like) a lot lower than we see in Australian dollar terms.

With the price falls this week in place, wool prices in US dollar terms are plumbing five year lows. 2015 was the last major down cycle. Figure 1 shows the 17 MPG in Australian and US dollar terms from early 1997 to this week. The US dollar value is very close to its five year lows while the Australian dollar value for the 17 MPG is close to its 35^th percentile for the past five years – still higher than for 35% of the past five years. For the 17 MPG we watch to see if new business comes into the market to hold it at or above US1000 cents. If not the next set of lows, reached in 20008 and the early part of the 2000s, around US 850 cents becomes the target.

Figure 2 repeats the exercise for the eastern 20 MPG. Note how the 20 MPG price in both currencies is remains well above the general price levels prior to 2011. In US dollar terms the 20 MPG is back to 2015 low levels. As with the 17 MPG, if support for the 20 MPG does not appear around US900 cents then the lows reached before 2011 become the next target.

Finally Figure 3 shows a similar analysis for the 28 MPG. In US dollar terms the 28 MPG looks particularly weak, as it has fallen below levels traded at during the past decade, and looks to be headed back down to levels last traded at in mid-2010. That implies further prices falls in the order o 8-10% to get the 28 MPG down to around US400 cents, before support turns up.

The unprecedented (at least in peace time) issue in this market is the lockdown of the supply chain at the retail level which is shrinking (quickly) the demand for greasy wool. We have the situation of a greasy wool market delivering wool for which demand has been slashed for an unknown period of time.

Key points:

• In US dollar terms the market now looks for support for merino prices in US dollar terms around current levels which line up with 2015 lows.
• The 28 MPG looks to have further downside to go, before finding support in US dollar terms.
• The price falls since January can be seen as an extension of the pre-existing down cycle, stimulated by the pandemic.
• It will take time for the next rising price cycle to develop, it will not be a quick process.

What does this mean?

The supply chain needs some wool but not the supply coming onto the market at present. It is unknown for how long this situation will persist. In the interim some parts of the supply chain will require wool so supply needs to be maintained but at lower volumes. While normal volumes are offered for sale, prices will continue to be under downward pressure.

In an environment of limited price data and scant access to sheep/lamb indicators we are used to there is still the ability to see what is going on with throughput volume and slaughter. Producers respond to lower prices with a reduced offering at sale yards and meat works reluctant to increase their appetite as supply chains slow and export markets pause for Covid19.

East coast lamb and sheep yarding levels have eased in recent weeks as the rush to offload stock amidst the Covid19 uncertainty abates and prices continue to drift lower. Weekly lamb yarding dropped nearly 30%, while mutton yarding dipped 15% to see combined throughput finish just under 240,000 head.

Compared to the week prior the lamb and sheep is off 25% to rest 7% above the five-year trend for this time in the season – Figure 1. The Easter break often sees ovine throughput reach a seasonal trough during April so the downward trajectory in sale yard volumes is to be expected.

After a short blip up in east coast lamb and sheep slaughter volumes during mid-March weekly levels returned back to the lower end of the seasonal range with the combined lamb/sheep slaughter figures dropping 9% to finish near 380,000 head – Figure 2.

Lamb exporters have been finding it difficult to find cargo space on passenger flights heading overseas as airline traffic grounds to a halt and the supply chain backlog suggests processors are hesitant to increase slaughter activity.

MLA reported just over 20% of chilled lamb exports made its way overseas as air freight in 2019 (measured on a value basis) so it is not an insignificant amount that needs to be transported. Hopefully, the federal government’s announcement of a $170 million rescue package for delivery of export produce to our key export markets will provide the capacity to get sheep meat exports moving again.

What does it mean/next week?:

The continued uncertainty over export demand and supply chain issues saw OTH indicators replicate the sale yards this week as OTH trade lamb prices softened 3% to close at 788¢/kg cwt. OTH Heavy lamb followed the weakening trend too, shedding 2% to rest at 797¢/kg cwt – Figure 3.

It is hard to see lamb and sheep prices bucking the trend for a downward bias in the week leading up to the Easter break, particularly while the spectre of Covid19 looms over offshore sheepmeat demand and continues to play havoc with the export supply chain.

Lamb supply ramped up last week, and without supply data for this week, it looks like it might have been just as strong. Panic selling hit the market and sent prices back towards early February levels. The good news is that prices remain historically strong.

Lamb yardings for the week ending the 20^th March hit levels usually only seen in December (Figure 1). This week the strong supply continued, and while we don’t have total numbers, looking through the major sale yards it looks like they may have been over 200,000 head again.

Lamb slaughter was also up last week at around 350,000 head. The extra numbers in the yards, combined with similar panic in bookings direct to works saw prices continue their decline this week.

The Eastern States Trade Lamb Indicator (ESTLI) duly tanked this week, as supply overwhelmed demand.  On Wednesday the ESTLI sat at 873¢/kg cwt (Figure 2). By no means disastrous, but down 10% on the highs. Wagga was also lower on Thursday, so the ESTLI is conceivably lower again, but we’ll never know.  More on this later.

South Australian lambs were cheaper than WA trade lambs this week, at 775¢ and 797¢/kg cwt respectively. Mutton is still cheap in WA at 513¢, while Victoria had the most expensive mutton at 705¢/kg cwt.

All prices received this week were still well above the same time last year, which is part of the reason the panic selling has taken hold. With lamb and sheep prices still in the top echelons of historical values, sellers will sell in fear of prices heading further south.

Next week.

There were some forward contracts about this week for April and May in the mid-800¢ range for lambs. This suggests processors are still worried about supply and are keen to lock in a portion of what is left.

Meat and Livestock Australia are changing the way they report prices, with officers no longer attending markets. This means we won’t be seeing the ESTLI or NMI for some time, but we will still have prices to track.

Following last weeks drama, the wool market found support and when all is considered, performed well. The finer microns led the way with buyers keen to purchase in the wake of possible total auction room shutdowns in the future.

Concern was noted in the AWEX report that the Covid-19 impact could eventually close sales altogether. In an attempt to get as much wool into the processor’s pipeline before any potential total closure of sales, in the week that was to be the Easter recess, an additional sale has been scheduled.

Supply ex-farm could also be impacted in future weeks. The offering of circa 5.7 million kgs this week came from approximately 1.3 million sheep. Any disruption to shearing teams as a means of preventing group contact could see this supply interrupted or in a worst case scenario, halt.

The Eastern Market Indicator (EMI) gained 4 cents to close at 1,442 cents. The Australian dollar continued its roller-coaster performance and rallied almost US$0.035 cents to be quoted on Thursday at US$0.592. This didn’t help buyers, with the EMI in US terms up 53 cents to 854 cents.

With fewer fine wools the Western Market Indicator struggled, and by weeks end gave up another 26 cents to close at 1,512 cents. WA brokers passed in 19.8% of the 8,089 bales offered, selling just 6,485 bales.

Of the original roster, 11% was withdrawn prior to sale by growers, resulting in a similar offering to last week of 42,934 bales. The pass-in rate fell to 14.3%. nationally leaving 36,790 bales cleared to the trade.

This week the total sales value was $55.35 million (up almost $9. Million on last week) or $1,505 per bale, exactly the same per bale value as last week.

After holding well in the last couple of weeks, Crossbred types eased marginally. The Cardings indicators were a mixed bag, with 17 & 34 cent falls in Sydney & Fremantle respectively, while Melbourne posted a 20 cent gain.

The week ahead

Again a large roster is listed for next week with 45,810 bales scheduled and all centres selling on Tuesday & Wednesday only.

There seems a level of buyer commitment at these readjusted prices, and with supply concerns going forward, the market should at least hold steady next week.

Early March saw an increase in throughput as sheep producers responded to record prices but in recent weeks levels have softened. No sign of processors looking to increase slaughter volumes though despite some anecdotal reports that supermarkets are keen to restock after a run on red meat. With the A$ collapse and concern over a Covid19 economic growth hit the uncertainty has filtered through to sheep and lamb prices. 

Figure 1 highlights the pattern for combined lamb and sheep throughput across the east coast. After an increase in weekly yarding in the first week of March toward levels that were testing the upper boundary of the normal seasonal range nearer to 285,000 head per week, we have seen it settle back toward more average seasonal levels – Figure 1.

This week I heard of an anecdotal report that a large retailer was seeking an urgent 25% increase in processing of red meat so that supplies could be quickly replenished after a run on product from panic buying preppers. 

However, a look at combined sheep and lamb slaughter across the east coast shows that there has been no appetite from processors to engage too heavily in the current market with prices so firm. The sheep and lamb slaughter volumes extending to levels consistent with the depths of winter, running at 24% under the five-year trend for this time in the season at around 365,000 head per week.

Prices at east coast sale yards for all categories of lamb and sheep reported by MLA’s NLRS service softened this week in response to jitters around the Covid19 spread. Mirroring the broader moves the Eastern States Trade Lamb Indicator (ESTLI) dipped 18¢ to close at 941¢/kg cwt and the National Mutton Indicator (NMI) shaved off 41¢ to finish at 668¢/kg cwt. 

Panic behavior we have seen at the supermarket spread to international currency markets this week with the A$ collapsing to an 18 year low near 55US¢. While this is unfortunate for those importing farm machinery or offshore inputs it provides a competitive boost for Australian sheep meat producers. Figure 3 highlights the ESTLI in both A$ and US$ terms with the sharp fall in the local currency allowing lamb prices in foreign buyer terms coming off 10% just this week.

What does it mean/next week?:

Given the depth of concern over the current global economic situation it’s hard to see sale yard prices rallying too much in the short term. A look at the rainfall forecast for the next week isn’t showing enough to encourage restockers too much further either so its likely we will see price pressure to continue in the next few weeks.

If last week in the midst of global turmoil the wool market caught a cold, this week it had “full-blown influenza”. Despite the Au$ free-falling, the wool market was hit hard with buyers reducing limits continuing the EMI downturn for the sixth consecutive day.

From the outset, the market was significantly cheaper with 100+ cent falls across the board.

The Eastern Market Indicator (EMI) lost 83 cents or 5% for the series to close at 1,438 cents. The Australian dollar collapsed losing almost US$0.09 to be quoted on Thursday at US$0.557. This cushioned the effect on sellers however the EMI in US terms was down 181 cents to 801 cents. This was a massive 18% fall and the lowest the EMI has been in US$ terms for over ten years. A sign that the global impact on trade is now clearly transferred into the wool market.

The Western Market Indicator performed better than the East, giving up 78 cents on the week to close at 1,538 cents. There were positive signs late on Thursday where the W.A. market clawed back some ground. However, W.A. brokers passed in 34.1% of the 8,066 bales offered, selling just 5,317 bales. 

While just on 50,000 bales were rostered nationally, almost 8,000 were withdrawn prior to sale resulting in 41,986 bales offered. Only 30,871 bales were eventually sold resulting in another high pass-in rate of 26.5%.

This week the total sales value was $46.49 million or $1,505 per bale, this is around $200 per bale lower than the seasonal average.

Crossbred types again showed the only positive moves with small gains in the 30 & 32 MPG’s although the finer crossbreds fell in line with the merino section. The Cardings indicators were not spared falling in all centres by 50 to 80 cents. 

The week ahead

Another large roster is listed for next week for with 49,874 bales rostered, with Melbourne again selling over three days and all centres selling on Wednesday & Thursday.

In “normal” conditions the collapsing Au$ would be a stimulant for buyers to purchase at lower US$ levels. These certainly are not “normal” times, with probably the only certainty that it will be much less than the 49,000 bales rostered that is eventually sold next week.