Category: Wool

Since October, we’ve seen the market oscillate from gains to losses at the turn of each week. However, this week saw the second consecutive week of declines with both the eastern and western markets ending November back near the base levels found after the period of volatility during Winter.

The market has largely traded within a 100 cent comfort zone for the last two months and is currently closing in on the lower end of that range. The Eastern Market Indicator (EMI) lost 30 cents, on top of last week’s 19 cent fall to close at 1,530 cents. The AU$ fell marginally by another 0.03 cents to US $0.676. In US terms this pushed the EMI down 22 cents to 1,035 cents.

Fremantle fared the best of the three selling centres In the weakened market but didn’t escape a fall of 15 cents in the Western Market Indicator to end the week at 1,640 cents.

High pass-in rates continued, with 14.2% of the national offering passed-in. This was a small decrease of 1.5% compared to last week’s rate. Supply was slightly lower this week, with the national offering down by 471 bales to 37,827.  The number of bales sold was nearly unchanged at 32,464 for the week. This season’s bale clearance continues to lag well behind 2018 at a difference of 100,058 bales. The average weekly bales volume is currently 5,266 behind last year.

The dollar value for the week was $54.03 million, with the average bale value sitting at $1,664, drifting $27 per bale below last week’s average. The combined value so far this season is $895.47 million.

The crossbred sector edged lower again with 26 to 28 MPG’s losing 30 to 45 cents. The broader microns received more support with just a 10 cent decline for 30-32 MPG’s. The Merino Cardings Indicators managed to hold their ground for a second week in a row, remaining relatively unchanged.

The week ahead

Another large offering is on the roster for next week with 41,274 lined up across the three selling centres for sales on Wednesday and Thursday.

With just 3 more weeks of sale before the market closes for the Christmas recess, volumes are tipped to remain strong with 39,513 and 37,278 bales scheduled for the following weeks.

Fremantle’s market sat at the top of the table for many individual MPG’s last week with a strong final day of sale. However, the glory was short-lived with the momentum carrying into the new week and Eastern market prices quickly moving higher. With prices wavering on the second day of sale, AWEX reported all three selling centres moved back into alignment.

The Eastern Market Indicator (EMI) gained 19 cents over the week to close at 1,574 cents. Currency markets took another hit. The AU$ dropped 0.6 cents to US $0.679, falling below the $0.68 threshold that it’s been hovering over for the last month. This meant the EMI in US$ hardly felt the rising market, with just a 2 cent increase on the week to 1,070 cents.

In Western Australia, the market had a solid jump on day one, with Fremantle MPG’s rising 25 to 39 cents. The softer market on day two saw the Western Market Indicator (WMI) 15 cents higher on the week to close at 1677 cents.

Growers were clearly happy to sell into the rising market. The pass-in rate dropped down to 7% for the week. The national offering of 36,110 bales was a small lift to last week’s volumes. The larger move was the bales sold, at 33,584 this was 5,472 bales higher than last weeks total. This season’s supply continues to lag well behind 2018 at a difference of 103,787 bales. The average weekly bales volume is currently 6,105 behind last year.

The dollar value for the week was $59.83 million, with the average bale value sitting at $1,781. The combined value so far this season is $786.73 million.

The crossbred sector saw mixed interest but kept within a +/-10 cent range from last weeks’ levels. The skirtings market followed the lead of Merino fleece closely, rising one day and falling the next.

The week ahead

Reports from brokers suggest volumes in store are starting to stock up with growers content with passing in their wool if prices don’t meet their mark. Many might be holding hope that the market will experience its usual kick in the New Year. Of course, this movement is far from guaranteed and caution needs to be taken. If this approach is widespread, the extra supply might take the shine off New Year’s prices.

A stronger offering is scheduled for next week’s sales with 40,726 bales currently on the roster across the three selling centres.

It is an unusual situation in commodity markets where the seller can move the market price, but a glance at the wool market over the last few months shows growers either selling aggressively on market rallies, or holding back on soft markets.

The pass-in rate has been in direct contrast to market moves, a falling market met with high pass-in rates and vice versa. This strategy has certainly supported the wool market with sellers reducing supply in the weeks where buyers have had little interest.

This week the Eastern Market Indicator (EMI) gained 49 cents (after rising 28 cents last week), to close at 1594 cents. The Au$ also rose to US $0.693, causing the EMI in US$ to also lift by 46 cents to 1,104 cents. The WMI also rose, however, a softer market in Fremantle on Thursday resulted in a gain of just 15 cents to 1687.

This market rise resulted in another week of single digit pass-in rates – sellers taking the opportunity to clear wool on a rising market. This week the PI rate was 6.4% nationally.

There was a bigger offering of 37,381 bales, almost 8,000 bales more compared to last week’s volumes. This resulted in a big lift in the number of bales sold, up 7,200 on last week to 34,870. This is the largest clearance to the trade since May. The supply shortfall continues though, compared to the same period last year 108,541 fewer bales have been sold. This equates to an average weekly gap of 7,200 bales since July.

The dollar value for the week was $63.65 million, with a bale average value of $1,825, up $55 per bale on last week. The combined value so far this season is $678.15 million.

AWEX reported that the Crossbred section was the strongest on the week, with prices lifting 35 – 70 cents. Cardings again were quoted dearer with locks, stains and crutching posting 50 to100 cent increase, to average a 65 cent lift.

The week ahead

Next week another solid offering is listed, with 36,400 bales across the three centres. This size roster is forecast for the next three weeks.

Despite the increased offering the market this week was strong, there was however a cautionary note with Fremantle on the last day tending weaker.

As humans, we outweigh the reaction to losses more than the benefit of gains. So, it pays to look at longer-term data to test this emotional reaction, seeing whether it is grounded in reality or simply an emotional response. This article takes a look at the size of cyclical downturns in Merino wool, beef and wheat during the past two decades to put the recent fall in wool prices in a less emotional context.

The average Merino micron price is down AUD700 cents on mid-2018 levels. Peter Small, writing in Sheep Central recently, described a young wool grower asking about price stabilisation as an answer to recent falls in the wool price (view here). The question implied that the fall in wool prices during the past year has been unusual, but is it?

Figure 1 shows the monthly average for the average Merino micron price from 1996 to last month. It nearly touched 2500 cents in mid-2018, and is now around 1800 cents. It has certainly been a big fall in price, from a high level. Also shown in Figure 1 is the change in price from the highest price level of the previous five years. The idea is to look at the depth of the down cycles in terms of the proportion that prices fall from the peak to the trough (P to T). In the late 1990s, when many apparel fibre prices were depressed, the Merino price fell from 1997 peak levels by around 45%. It fell a similar proportion in 2005, down from the 2002-2003 peak. In 2009, the price only fell by 30-35%. In 2012 through 2015 the price fell from the 2011 peak by a more modest (again) 30%.

Currently, the market is 27% below 2018 peak levels, roughly on par with the 2012 downturn. The current downturn is therefore (so far) moderate and similar to the previous down cycle. The down cycles have become less severe in the past two decades, which makes sense as the level of stocks and production have fallen.

How does wool compare to beef? Figure 2 repeats the exercise for a NSW saleyard trade steer price. Since the 1990s down cycles have resulted in a fall of 25-30% from prior peak levels. The 2014 down cycle was appreciably smaller at around 20%.

Figure 3 treats a NSW wheat price series (Newcastle zone) in the same manner. Wheat shows up as more volatile, with some hefty down cycles where prices fell by 50%. There have been a couple of down cycles in the order of 30%, as well.

The take-home message from this very brief look at price volatility is that the average Merino wool price has comparable price volatility to beef and wheat. Down cycles do vary, but it is hard to make a case for the Merino price being in a league of its own in terms of price volatility.

What does this mean?

The average Merino price has fallen by around 700 cents since mid-2018. For those of us anchored in the 1990s that is a frightening number as it was once a (successfully) hedgeable price in its own right for 21 micron. In proportional terms though, the current downturn in wool prices looks to be playing out to it standard of the past decade. In comparison to trade steer and wheat, the wool market is not overly volatile – just a commodity price which goes through patches of strength and weakness.

It was a steady and solid opening to wool sales this week, which offered a welcome respite to buyers and sellers alike from the recent wild roller coaster ride for wool prices over the past month. With lifts in price across the board, the pass-in rate retreated to single-digit figures.

This rising sentiment continued to the close of selling, with AWEX late on Thursday reporting Fremantle market “strengthening all the way to the final hammer.”

The Eastern Market Indicator (EMI) gained 28 cents (after losing 26 cents last week), to close at 1545 cents. The Au$ also rose to US $0.684, and resulted in the EMI in US$ also rising 28 cents to settle at 1,058 cents. The WMI had a strong week benefiting from selling last, rising 51 cents to 1672.

The market improvement was general and across the board. Gains of 1.5 to 2.4% were reflected across the range of MPG categories, a case of a “rising tide lifting all boats”.

A look at the relative centre offerings shows that with Sydney only selling on day 1, it only offered 4,972 bales to sell 4,577, while Melbourne over 2 days sold 14,627 out of the 15,498 bales that came forward. Fremantle passed in 8.3% of the 6,607 bales offered, for a clearance of 6,057.

There was a much-reduced offering of 29,760 bales this week, almost 6,000 bales fewer than last week’s volumes. The National Pass-in (PI) rate was half of last week at 7.1%, which meant 27,641 bales were cleared to the trade, 2,548 less than last week. The supply shortfall is still significant, with 113,600 fewer bales sold so far this season compared to the same period last year. This equates to an average weekly gap of 8,114 bales since July.

The dollar value for the week was $48.93 million, and a bale average value $1,770. The combined value so far this season of $614.50 million.

Crossbreds performed in line with the general market, while Cardings were quoted up 3%, however it was only Melbourne & Fremantle centres that contributed to the rise.

The week ahead

All centres return to selling both Wednesday and Thursday next week, with an increased offering of 39,000, 10,000 more than this week.

Despite the increased offering, the positive end to sales this week should provide a solid platform for next week.

The shaky wool market opened this week lacking power. With a decent offering, the first day of sale saw instant corrections across the board, only to show signs of a resurgence at the days’ end.  This momentum carried through to a stronger market on Thursday, however it wasn’t enough for the market indicators to avoid overall declines on the week.

The Eastern Market Indicator (EMI) lost 26cents (after gaining 32 cents last week), to close at 1517cents. The Au$ also rose to US $0.678. This buffered some of the fall in the EMI in US$, dropping 12 cents to end the week at 1,030 cents.

The Fremantle sales proved weaker than its eastern counterparts on day one, falling 42 cents before regaining some ground on the second day of sale. The Western Market Indicator lost 32 cents on the week to close at 1,621 cents. AWEX reported that despite the price rises on day two, there were still many unwilling sellers, resulting in nearly 20% of the fleece passed in.

There was a much higher offering of 35,356 bales this week, an extra 7,207 bales on last week’s volumes. The National Pass-in (PI) rate was 14.6%, which meant 30,189 bales were cleared to the trade. This is the first week since March that we have seen the number of bales sold actually higher than the corresponding week last season. Of course, the supply shortfall is still significant, with 115,415 fewer bales sold so far this season compared to the same period last year. This equates to an average weekly gap of 8,878 bales.

The dollar value for the week was $52.97 million, for a combined value so far this season of $565.68 million, and a bale average value $1,732.

Crossbred were the worst performing category this week, losing 10 to 55 cents across the microns. After last week’s losses, the Cardings Indicators again held their ground with just a 5 cent average fall.

The week ahead

A smaller offering is rostered for sale next week of just 32,970 bales. Sydney is down to just one day of sale on Wednesday, while Melbourne and Fremantle are selling both Wednesday and Thursday.

Let’s hope the positive tone moving through the market at the end of this week carries through.

It concerns me that we are starting to get accustomed to the “roller-coaster” ride that has become the wool market. The wild fluctuations are causing sellers a headache, deciding whether to sell, pass lots in, withdraw or wait.

We can only guess what this is doing to the exporters and processors, as they manage supply requirements alongside the unpredictable price movements of recent months. It is hard to imagine anyone is pleased with the recent volatility and it must be damaging the wool markets reputation internationally.

The Eastern Market Indicator (EMI) rose 32 cents or 2.1% (after losing 97 cents or 6% last week), to close at 1543 cents. The Au$ also rose to US $0.675. This saw the EMI in US$ also improve 26 cents to end the week at 1041 cents.

The Fremantle sales also fared well, with the Western Market Indicator recovering 43 cents of the  92 cents loss of last week to close at 1,653 cents. Again a small offering selling just 6,245 bales with a PI rate of 13.1%, modest compared to last weeks 40.8%.

Sellers reacted in what has become their normal response by “selling” into the rising market. The National Pass-in (PI) rate was 7.6%, compared to 33.4% of last week. AWEX reported that in response to last weeks big falls, growers withdrew large volumes prior to sale. For the week 4,620  bales were withdrawn.

A decreased offering of 28,149 bales came forward, with 26,015 bales cleared to the trade (Figure 2). There have been 116,533 fewer bales sold this season compared to the same period last year. This is an average weekly gap of 9711 bales.

As reported this week by Andrew Woods on Mecardo (view here), fine Merino prices have been under pressure from increased supply during the past 12-18 months, which has resulted in premiums shrinking to very low levels. As the fibre diameter approaches year earlier levels and then starts to increase, the supply of fine wool will steady and then begin to fall. This will reduce downward pressure on fine wool premiums. The reverse process, to a certain extent, will apply to broad Merino wool.

The dollar value for the week was $45.83 million, for a combined value so far this season of $512.71 million, and a bale average value $1,730.

While last week the Cardings indicators held against the tide, this week they were cheaper across the board, averaging a fall of 20 cents. The news from the Crossbreds types was that the 26-28 MPG’s improved, except for poorly prepared clips which were cheaper or were passed-in.

Next week an offering of 40,056 bales are rostered.

To continue to predict the market movements in this climate is a bit like following the formline of “The Wallabies”, you don’t know what you will get until the day. The long decline in wool export volumes should begin to play on processor inventories (assuming sales are continuing), so we will go for the market to continue on an improving trend for next week.