Category: Wool

Last week we had wool at all-time highs, and the
usual response is to look forward to see how much
higher it could go. This week the wool market provided
a reality check, prices on the opening day (Tuesday)
were down 20 to 40 cents compared to the close of last week.
It was the mid-point of Merino microns that suffered,
with 19 to 21 MPG feeling the brunt of the retracement
while fine wool was least effected.
The good news was that after the “correction” on
Tuesday, the market was remarkably resilient on
Wednesday; in fact, by the end of the week the 17 & 18
MPG’S had closed above last week’s level in Melbourne.

To retain some perspective; the EMI is still well above
the closing December markets, whether measured in A$
or US$ terms – figure 1.

The trend of improving fine wool premiums continued
this week; the 18 Basis premium over 21 MPG has
doubled since October last year. Fine wool producers
have seen this premium rally from 123 cents this time
last year to now sit at 443. This will provide an incentive
to hold the line with fine wool sheep, although it is
concerning processors how far the micron will broaden
this year given the excellent seasonal conditions currently in play.

Growers response to the easing wool market was to pass-in 13.3% of the offering, or almost 6,000 bales. To break this down a bit more, of the 30,657 bales of Merino fleece and skirtings offered, 3,500 bales or 11.4% were passed-in by brokers. Normally this would be seen
as a “brave” decision when the market is at record levels; the change in supply as well as the very limited wool either in the pipeline or in brokers stores makes this decision a little more understandable.

As we said last week, high prices provide an opportunity in
the wool market to forward sell, this week’s retracement
is a timely reminder that often high prices are the
antidote for high prices.

This week we have had a lot of feedback about our blog
article, “Let’s make merino great again!”. We are looking
for innovations and ideas we can publicise to showcase the
great things that are happening in the merino/wool industry.

The Week Ahead

The offering of next week is 42,584 bales in all three centres
over two days. Based on the recovery to the Tuesday correction
and the reduced offering we should see the market at least hold.
The test will be if the processors remain buoyant about the
market outlook or were they “spooked” by this week’s roller
coaster and decide to sit back and see how this plays out.
As usual, interesting times for wool.

The first week of sales for the new year last week
opened with a bang, the EMI smashed through
1400 cents, while the WMI reached almost 1500
cents. (WMI has little influence from X Bred prices).
This week the good times continued, prompting
AWI to announce the wool market was at an
all-time record. This statement needs a little more
detail to confirm; the wool market across the board
is not all at record levels.

While not wanting to dampen down the enthusiasm,
the wool market covers a wide range of types, not all
are trading at highs. It also needs to consider the
timeframe; the high this week of the EMI still hasn’t
overtaken the April 1988 high of 1523. As Mecardo
followers will know, we also look at the price the
processors are paying to determine how strong is
demand; so, when looking at prices do you consider
the price from the buyer’s perspective or the seller’s
perspective? We think that while the price the grower
receives is important from an Australian viewpoint,
the cost to the buyers is a truer reflection of demand.

In Au$ terms the June/July period of 2011 was the
previous recent high for the EMI – 1426 cents.
At this time the A$ was trading at US$1.07, causing
the processors to shell out US$ 1500 cents. Note
that this week the EMI in US$ terms is still below
1100 cents. (Fig 1.)

The positives to the above analysis is that in this
scenario everyone is happy. Buyers receive regular
orders when the market is rising; processors don’t
want to miss out and a strong market resonates
confidence all the way up the wool pipeline. The
lower A$ (compared to peak levels when it traded
around parity) is keeping prices for the ultimate
end customers below previous peaks. Happy sellers,
happy buyers – the true definition of a “win-win!”.

On a cautionary note, the EMI high reached in the
winter of 2011 was then followed by the recent history
low point of 946 in September 2012. The market then
wobbled along with the EMI oscillating between
1000 + 1140 until early 2015 before the beginning of
this current positive run. Out take on this rear view is
that markets are continuously moving; so at “record”
levels locking in some of the future clip needs to be
considered. As one grower said, this is the time to
“kick the can as far down the road as we can!”

The trend of improving fine wool premiums continued
this week, we are now seeing the highest “basis” levels
since January 2012, however as Fig 2 shows, we have a
long way to run to get back to the heady days of 2011.
It is great to see that the 18 – 21 MPG basis has doubled
to 400 cents since October last year, fine wool producers
should begin to feel that their product is again on the up.

A challenge for the industry if, as is expected, the market
remains strong but supply stays static, is that the wool
trade may become frustrated that higher prices are not
encouraging increased production. As Andrew Woods
reported, sheep numbers in these bumper times are
only forecast to rise by 1.4% next year.

The Week Ahead

The offering of next week is below 50,000 bales so after a
couple of big offerings supply is easing, and based on reports
from traders the market is going to continue to remain active.
It would be unusual to see the market continue to rise at the
same rate as the last 2 week’s (not unprecedented though!),
so on balance a steady week ahead with a continuance of
strong demand for selected lots of the better-quality fine types.

At the end of sales for 2016, we noted that the wool market had
finished in line with its performance over the year, solid, firm and
resilient. There was generally a feeling of confidence, but the open
to 2017 was well above expectation. The market this week opened
strongly and then just got better.

The week started in Melbourne on Tuesday where the initial price
rises were led by the fine wool, and when Sydney joined in it had to
catch up with the early market quote reporting 18 MPG up 100 cents
compared to the last sale in Sydney of 2016.

This was a large offering, the 48,808 bales sold was 10,000 above
the average weekly clearance for 2016.

By the end of the week, the EMI had jumped 67 cents to be at its
highest level for 5 years and within 3 cents of its all-time high in
2011 (Fig 1). In A$ terms it sat at 1422, exactly 140 cents above the
level for the first sale in 2016. In US$ terms it’s at 1061, well above
the comparative year ago, level of 890. These are strong signals that
demand is improving. Percentiles are telling the story, with all types
except Crossbreds at the 95% level or better. (Table 1)

In the Mecardo report this week by Andrew Woods, Wool supply
update, the seasonal effect is starting to become obvious with the
good general spring conditions translating into the clip moving
broader. This is taking pressure off fine wool prices, in fact there
is now evidence of buyers
concern with this end of the market keenly sought out this week.

The micron movement of the clip will be most keenly felt in the sub 19
MPG which is reducing in volume, and the 20 microns and broader
which is increasing. This trend has further to run, even without further
rain for the next couple of months the path is set; the clip will continue
to move broader. As a result, the fine wool premium is likely to continue
to improve, resulting in higher fine wool prices providing that medium
wool categories can at least hold at these levels (Fig 2).

Crossbred types missed out on the general price rally and continued to
struggle, on the other hand the 30 – 40 cent lift in the Cardings indicator
pushed all 3 centres indicators to record levels.

The Week Ahead

Another big offering of 55,000 bales listed for next week, and based
on this week’s sales we expect that only crossbred producers will be
doubtful of turning up to sale. So, a big offering, however those we
have spoken to in the trade are not seeing this as a temporary spike,
and while not expecting to see the gains of this week repeated note
that the tight pipeline supply is keeping orders flowing at these levels.

The wool trade is also aware that listed bales for sale quickly drop
back to 40,000 per week.