Category: Wool

It was almost possible to hear the audible sigh of relief from buyers & sellers when the wool market began the official 2019/20 season with a “much welcomed positive result”. AWEX reported that after June posted the 2^nd worst result in AWEX history (since ’95), the market ended in positive territory for the week.

The Eastern Market Indicator (EMI) fell back slightly on Wednesday but by the close on Thursday had found an 8 cent gain to end at 1723¢/kg clean. The Australian dollar pushed back up through US 70 cents for the first time since early May, quoted at US$0.704.

AWEX report that while the opening sale is generally large as producers clear stocks held across financial years, this offering was well down on previous seasons. In fact, the offering was down almost 13,000 bales or 29.4% compared to last year.

While the lower flock number and drought influence on fleece weights are factors in this reduced supply, the strong prices over the past season have encouraged wool growers to sell wool rather than store in brokers sheds. Not-with-standing the recent high pass-in rates, the market at present is operating on record low volumes.

30,991 bales were offered at Sydney, Melbourne & Fremantle, just 2,000 more than last week. The pass in rate across the selling centres pulled back significantly to 6.3% for the week (20% last week), with Fremantle sellers only passing-in 8% compared to last week’s +30%. This meant that 29,046 bales were cleared to the trade, almost 6,000 more than last week.

There is a somewhat absurd tone to this market, last week buyers pulled the EMI back 51 cents, growers passed in 20%, and just 23,332 bales were purchased by the trade. This week, EMI rallies 13 cents, Pass-In rate drops to 6% and 29,000 bales were purchased by exporters. This suggests that there is little strategy on behalf of either buyers or sellers, with a “short-term” approach dominating.

Crossbreds were the only section to not rise, holding last weeks levels, while Cardings in the eastern selling centres were stronger, however, the West was cheaper.

The week ahead

Next week a combined offering of almost 35,000 bales is rostered across all selling centres in the leadup to the winter recess.

A good lead indicator for demand into next week was the strong finish to the Fremantle sale, after posting a 16 cent rise on day one, it followed up with a further 19 cents on Thursday.

The question last week was “is this the bottom?” We had a clear answer this week,in the short term the market pain is still coming. Again a small offering was met with a lack of confidence (read lack of orders) from buyers and their processor customers; this resulted in the market reaching its lowest point since December 2017.

The Eastern Market Indicator (EMI) shaved off nearly 3% to close the week at 1715¢/kg clean. A higher Australian dollar limited the market falls in US$ terms with the US$ EMI only easing 1.5%. The improving Australian dollar value seemingly adding to offshore buyer disinterest in our wool this week despite the relatively low offering.

AWEX report that the EMI has lost 172 cents in June; this has only been surpassed in March 1991 when the Reserve Price Scheme was abolished. In percentage terms, the EMI has retreated 9.1%, the largest fall since August 2012.

29,167 bales were offered at Sydney, Melbourne & Fremantle, almost 10,000 more than last week with W.A. back in the market. The pass in rate across the selling centres jumped to 20.0% for the week, well up on last week’s 12.8%. Fremantle passed in 1 in 3 bales offered, this meant that 23,332 bales were cleared to the trade, 6,500 fewer than the corresponding week last year.

Crossbreds also recorded falls, although not to the full extent as the Merino section, losses of 30 to 50 cents was common.

This week marked the final trading session for the 2018/19 season and an assessment of the offering during this season shows that bales offered have declined nearly 12% on the volumes offered during the 2017/18 selling season. A falling market on reduced supply can only signal one thing, weaker demand.

Certainly reports from wool exporters suggest the ongoing trade issues between China and the US have impacted consumer sentiment within the Chinese economy and have offshore wool buyers a bit spooked.

The week ahead

Next week a combined offering of just over 34,500 bales is rostered across all selling centres, with a further 35,000 the following week before the winter recess.

AWEX make the point that the first sale in the new financial year is usually a larger one with growers clearing wool held over, however the current roster is well down on the same period last year, where over 37,000 bales were acrtually sold in each of the first 2 sales.

Nine trades were dealt on the forwards market this week, most of them in 19 micron wool, a bit of a slap in the face after predicting quieter markets, but healthy for the forwards market.

Seven trades were dealt in 19 micron wool. One agreed for July at 2,025¢, two agreed for August at 1,985¢ and 2,045¢, quite a discrepancy of 60¢. One trade was dealt for September and agreed at 1,905¢ while two trades were agreed for October at 1,900¢ and 1,915¢.

Two trades were dealt in 21 micron wool, both for December. One agreed at 1,900¢ and the other at 1,920¢.

It’s hard to predict what might be ahead for the forward market as auction supply continues to dwindle. Furthermore, a falling auction market fosters doubt and hesitance among participants in the forward market and makes for thin and volatile trading.

While the market again suffered a significant fall, the AWI commentary on the market noted that almost all of the damage occurred on day one of selling, with a more measured response from exporters on Thursday.

Since the peak of March, in four months the EMI has lost 261 cents, or 14%; while in US$ terms it has fallen 233 cents or 16%. Bales sold is also down, 84,500 or 15% less than over the corresponding period.

The Eastern Market Indicator (EMI) fell back a further 57 cents this week on top of the 41 cents fall of last week and closed at 1,766 cents. The Au$ was also weaker slipping below US $0.69 mark and as a result, the EMI in US$ terms fell 42 cents, ending the week at 1,218 US cents (Table 1).

The AWI market commentator lists exporter finance issues, trade & tarrif wars and Brexit as all factors impacting negatively on the market over the past four months.

On the positive side, the EMI has not been as low in US$ terms since October 2017, so for the processors who have stood back from the market the price now should be more attractive.

 Supply is well back, both in seasonal and year-on year comparisons causing exporters to run down inventories; so along with the fact that over the next 2 months Australia is the only market with any volume, if there is any move to replace stocks we will see stronger demand. These are all factors leading to the suggestion that we may see the market find support at these levels.

Only 19,072 bales were offered at Sydney & Melbourne, 9,068 fewer than last week with Fremantle again not participating. The pass in rate across the selling centres was 12.8% for the week, Although well down on last week’s 21.3% the low offering meant that 16,634 bales were cleared to the trade, 4,270 fewer than the corresponding week last year.

We looked back to 2015 and could not find a lower week of wool bale clearance, this could well be the lowest for 50 years or more!  In the auction weeks since the winter recess, 1,390,315 bales have been cleared to the trade, 278,830 fewer than the same period last year.

The dollar value for the week was $30.38 million, for a combined value so far this season of $3.150 billion.

The week ahead

Next week a combined offering of just over 30,800 bales is rostered across all selling centres. For the following weeks 35,200 and 35,500 bales are currently forecast.

It cannot be ignored that the wool market is weak. If we compare when the market was at 1750 cents in early 2018, the outlook is far less optimistic despite lower supply. Back then the thought was “the market can only go up”. 16 months later after running through 2,000 cents we are back where we started at 1766 cents, but with a far less optimistic outlook.

A quiet week in the forwards market with only two trades, reflecting the falling auction markets of recent weeks.

One trade was dealt in 19 micron wool for August and agreed at 2,050¢  One trade was dealt in 28 micron wool for August and agreed at 1,040¢.

It’s been a few weeks since we’ve seen the forwards market this reserved but it is to be expected in a falling auction market. Growers don’t generally lower their prices to suit a weak market, but hold for when it will eventually rise again. Until then, as prices fall in search for a base and the outlook looks less optimistic as explained earlier, we will likely see quieter forwards for some time.

Another week of low offerings, high pass-in rates and price falls.The retracement from the February peak is well and truly happening.

All categories were impacted with the exception of the better prepared crossbred lots, although these were in scarce supply.

The Eastern Market Indicator (EMI) fell back a further 41 cents this week on top of the 23 cents of last week and closed at 1,823 cents. The Au$ held steady for the week at US $0.691 and as a result, the EMI in US$ terms fell 39 cents in line with the Au$ movement, ending the week at 1,260 US cents (Table 1).

AWEX report the EMI is now 293 cents below the record of 2,116 cents it achieved in August last year and 198 cents lower than the same time last year, a fall of 9.8%.

Fremantle had to catch up to the East coast following its one week recess. This realignment hit hard on Wednesday with a generally lesser continuing fall on Thursday. It was a very small offering of just under 6,000 bales in W.A., however growers passed in 2,400 bales or 40% of the offering. This could be a record pass in rate, even for Fremantle.

An offering of just 28,140 bales came forward nationally, 6,300 more than last week with Fremantle returning. The pass in rate across the selling centres again was high, at 21.3% for the week, up on last week’s 15.5%. This meant that 22,160 bales were cleared to the trade, 11,300 below the corresponding week last year. In the auction weeks since the winter recess, 1,351,521 bales have been cleared to the trade, 274,560 fewer than the same period last year.

The dollar value for the week was $42.20 million, for a combined value so far this season of $3.119 billion. A simple calculation of $ value divided by bales sold gives us $1,904 per bale across all types for the week.

Crossbred wools also fell on both days with the exception of some of the better prepared fine crossbreds which were slightly stronger. Oddments were cheaper, although some lots with low VM attracted stronger interest, again these lots were few and far between.

The week ahead

Next week a combined offering of just over 19,000 bales was rostered across all selling centres. For the coming weeks 31,000 and 34,000 bales are currently forecast.

The past 5 weeks has seen almost 40,000 fewer bales cleared to the trade compared to the same time last year. It is with interest we await the usual Spring flush of wool to get a feel for the full extent of the supply levels that will be available for the rest of the year.

A very solid week in the forwards market with eleven trades dealt across the most popular MPGs.

Five trades were dealt for 19 micron wool, three for August agreeing at 2,035, 2,050¢ and 2,060¢. The remaining 19 micron trades were for September and agreed at 2,040¢ and 2,050¢.

Four trades were dealt for 21 micron wool. Two of those were for August, agreeing at 2,030¢ and two for October at 1975¢ and 1980¢.

One trade was dealt for 28 micron wool and agreed at 1,080¢ for August.

With auction prices plummeting, the forwards curve in the short term looks steeper than the last month or so. We expect it might change a few times before the market settles again.