Category: Wool

After strong buying activity last week, this week we saw buyers retreat in what was the lowest offering since June last year with Fremantle not selling at all. The market fell back as buyers were cautious about filling orders due to the small offering and lower quality wool. In going over our records of bales sold (back to October 2015), this week and 2 weeks ago are the only times where sales on a weekly basis have been below 20,000 bales.

The Eastern Market Indicator (EMI) gave up 23 cents this week after gaining 54 cents last week and closed at 1,864 cents. The EMI has fallen 4 out of the last 5 weeks, with AWEX reporting it has lost a total of 96 cents since week 44. The Au$ again found some strength lifting almost 0.5 cents to US $0.697 and as a result, the EMI in US$ terms only fell by 7 cents to end the week at 1,299 US cents (Table 1).

An offering of just 21,787 bales came forward, almost 7,000 less than last week (note Fremantle did not sell). Growers again reacted against the easier market. The total pass in rate for the week was 15.5%, well up on last week’s 8.4%. This meant just 18,380 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, 242,721 fewer than the same period last year.

The dollar value for the week was just $35.18 million, for a combined value so far this season of $3.077 billion. A simple calculation of $ value divided by bales sold gives us $1,914 per bale across all types for the week.

Crossbred wools also lost ground after a strong effort last week, losing 5- 10 cents, however the 30 MPG category was quoted slightly stronger. Oddments were cheaper, giving back the gains of last week. Since the Cardings peak of Sep 2018, AWEX report on average across the 3 selling centres Carding Indicators have fallen 571 cents.

The week ahead

Fremantle returns next week however a combined offering of just under 30,000 bales is rostered. The following weeks 19,000 and 31,000 bales are currently forecast.

Supply is always at its low point in Winter, however buyers and processors will be watching closely to see the extent of the supply increase and quality improvement in the Spring.

• The micron price curve from 15 through to 23 micron is extraordinarily flat at present.
• Change in supply has been the key driver of this move to a flat price curve.
• Fibre diameter is constantly changing in response to change in seasonal conditions.
• As fibre diameter changes, so too does the supply of different micron categories and consequently the micron price curve.

Last week the 19 MPG finished 5 cents above the 21 MPG, which is a very small premium.  In the bullish fine wool market of 1999-2001 many in the industry were carried away by the fine wool premiums, confusing a mix of cyclical factors as a permanent change in the prices structure of the greasy wool market. Given the poor performance of fine wool premiums since 2012 (with the exception of 2017) the risk is that the reverse of 1999-2001 could happen. This article takes a look at a key driver of micron premiums and discounts.

In Figure 1 the micron price curve for May 2017 and May 2019 is shown. The price curve is generated by setting the average 19.5 micron price to zero and comparing the other micron prices levels to it. In May 2017, fine merino premiums were high by historical standards, the opposite position to the current greasy wool market. Compared to 2017, the current market premiums for sub-19.5 micron have shrunk to negligible levels while the discounts for 20 to 22.5 micron have also shrunk to minimal levels. This has flattened the micron price curve.

In 1999-2001 a combination of favourable supply (less fine wool), a depressed apparel fibre market (man-made fibre and cotton prices were low for an extended period which dragged medium and broad merino wool to low price levels), a favourable fashion cycle which allowed fine merino wool to avoid low prices and finally a low exchange rate which helped boost the local price resulted in huge micron premiums for fine merino wool.

In the current market the reason for the flat micron price curve looks to be mainly a supply issue. Figure 2 compares the change in the two micron price curves shown in Figure 1 with the change in supply, by micron category, between May 2017 and May 2019. The graph tells the story. Where supply has risen, the micron curve has fallen and where the supply has fallen, the micron curve has risen. When looking into the future, keep in mind the fibre diameter of the merino clip is always moving in response to changing seasonal conditions so the pattern of volume change shown in Figure 2 will change and reverse at some stage. When the supply does change, expect price to react with the micron price curve changing accordingly.

Finally, in Figure 3 the actual micron price curves in cents per kg terms for May 2017 and May 2019 (from 15 to 24 micron) are shown. The price level for 15 to 17 micron has barely changed.  It is the broad merinos (20 to 23 micron) which have changed price levels dramatically, assisted by chronic under-supply since early 2018.

What does this mean?

Merino micron premiums and discounts are probably at their perigee. The fall in the average merino fibre diameter is shrinking, with a reasonable prospect of the fibre diameter starting to increase in the new season which would start to reverse the trends in supply seen during the past 18 months. From this the micron price curve will change once more, with micron premiums and discounts beginning to widen.

Another solid week in the forwards market, with 21 micron being the main MPG dealt.  One trade was dealt for 19 micron wool for August and agreed at 2,180¢. Four trades were dealt for 21 micron wool. One of those was for September at 2,080¢ and one for October at 2,050¢. Two trades were agreed for November at 2,050¢ and 2,075¢ respectively.  Two trades were dealt for 28 micron wool and were agreed at 1,100¢ and 1,130¢ for August.

We’ve seen the gap between fine and medium wools tighten in recent weeks, probably due to a higher supply of finer wools as a result of drought. Looking further down the track, if the rains keep falling, we’re likely to see the gap between fine and medium wools broaden again.

The wool market kicked back into gear this week as buying sentiment strengthened. A limited offering meant buyers were more aggressive with their purchasing to secure their requirement. All categories and microns felt the benefits. 

The Eastern Market Indicator (EMI) rose 54 cents on the week to close at 1,887 cents, nearly making up for last weeks 60 cent loss. There is still some way to go yet to climb back from the 3 consecutive weeks of a falling market.  The Au$ lifted this week to US $0.693 and as a result, the EMI in US$ terms rose by 46 cents to end the week at 1,307 US cents (Table 1).

The Western Market Indicator (WMI) gained 55 cents to 1,992 cents this week. Medium Merino wools attracted the most support. The largest increase being the 19 MPG in Melbourne lifting 80 cents.

Supply was again at low levels with the national offering of just 28,273 bales. With the market moving higher, growers were more content with their levels. The total pass in rate for the week was 8.4%, a dramatic drop from last weeks 28%. This meant 25,901 bales were cleared to the trade, which is in line with the volumes cleared this week of sale in 2018. In the auction weeks since the winter recess, 1,333,141 bales have been cleared to the trade, 252377 fewer than the same period last year.

The dollar value for the week was $50.69 million, much improved on last week. The combined value so far this season is $3.042 billion. A simple calculation of $ value divided by bales sold gives us $1,957 per bale across all types for the week.

Crossbred wools felt the results of strong demand, rising 45- 50 cents. Oddments also moved higher, with AWEX reporting that locks came under intense pressure as multiple exports competed for limited quantity which pushed prices up 30 – 40 cents.

The week ahead

Fremantle aren’t holding any sales next week, so the roster for Sydney and Melbourne is looking at a combined offering of just 23,619 bales. The following weeks 23,360 bales and 19,610 are currently forecast. While we usually see a dip in supply as we draw to the end of the selling season, this will add to what is already 12% less auction volumes this season to date compared to the same period in 2018/19.

It’s been nice to see the glowing Wool Week campaigns highlighting the benefits of wool to consumers, especially considering the market was far from glowing this week. Prices took another harsh cut, replicating last weeks loss which appears to be driven from uncertainty in the China-US tariff war and added supply coming out of South Africa.

The Eastern Market Indicator (EMI) fell 60 cents on the week to close at 1,833 cents, that’s on the back of last weeks 59 cent loss. The bulk of the drop was on the first day of sale, as some better style wools came forward on day two to slow the downward spiral. The Au$ dropped again to US $0.687 and as a result, the EMI in US$ terms fell by 49 cents to end the week at 1,261 US cents (Table 1).

The Western Market Indicator (WMI) declined by 58 cents to 1,937 cents this week. 48.7% of the small offering of wool was passed in as a result, which AWEX report was the lowest clearance rate in the West since 2003.

It’s times like these when it’s important to keep a check on prices from a historical perspective. There were times last year when we saw the market rally over 125 cents in a single week, and the EMI is still 25% above the five year average.

Nationally, supply was at extremely low levels with the full offering of just 24,121 bales. The total pass in rate for the week was 28.2%, leaving only 17,308 bales cleared to the trade. This is 12,093 bales fewer than the same week last year. In the auction weeks since the winter recess, 1,307,240 bales have been cleared to the trade, 252,308 fewer than the same period last year.

With the joint low volumes and reduced prices, the dollar value for the week was at a very low $32.7 million. The combined value so far this season is $2.991 billion. A simple calculation of $ value divided by bales sold gives us $1,889 per bale across all types for the week.

Crossbred wools took a large tumble in the falling market. The 28 micron fell another 110 cents. In USD terms, in the last two weeks, the 28MPG has retraced 50% of its rise from late 2018. The Merino Cardings Indicators declined 5-40 cents on the week.

A quiet week in the forwards market, with 19 micron being the only wool length dealt.

For 19 micron wool, three trades were agreed. One was dealt for June at 2,175¢. For 2020, one trade agreed for both January and February and agreed at 2,070¢ each.

Currently, the forwards prices are higher than current auction prices, which indicates that supply is becoming a concern into Winter and points to the spot auction market making a base at current levels. For this reason, we’re going to hold off on the forward curve while we wait for more data.

It’s been quite some time since we’ve seen prices fall so dramatically week on week. From the outset, prices were lower and the falls continued over each day of sale. No micron, style or selling centre was spared.

The Eastern Market Indicator (EMI) fell 59 cents on the week to close at 1,893 cents. When comparing to the record high EMI last August, the current market is 11% lower. The AU$ fell by another 0.5 cents to US $0.691 and as a result, the EMI in US$ terms fell by 52 cents to end the week at 1,309 US cents (Table 1).

The Western Market Indicator (WMI) after losing 31 cents last week, dropped another 67 cents to 1,995 cents this week. AWEX noted the defiance of sellers in WA on Wednesday, where over 48% of the offering was passed in.

Supply was reasonably unchanged on last week, 352 additional bales were offered to take the full offering up to 33,154. But with a whopping 21.7% of wool passed in, a mere 25,965 bales were actually cleared to the trade. The last time we saw pass in rates this high was in October last year when the EMI was at 1,874 cents. Coming off a record EMI in August 2018, growers weren’t happy back then to sell in the falling market. While this weeks market isn’t far from those levels, it’s still a good leg above the season lows in November.

In the auction weeks since the winter recess, 1,289,932 bales have been cleared to the trade, 240,215 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,492 bales per week fewer.

The dollar value for the week was reduced again at $51.83 million for a combined value of $2.959 billion so far this season. A simple calculation of $ value divided by bales sold gives us $1,996 per bale across all types for the week.

Even crossbred wools couldn’t hold their stance in the falling market. The 26 and 28 micron plummeted down 110 – 140 cents in Melbourne. The broader 30 and 32 micron fibres weren’t as heavily discounted, dropping just 20 – 30 cents. The Cardings Indicators fell 35 to 50 cents on the week to the support level of 2015-2018 at around 1040 cents.

A solid week in the amount of forwards trades this week, especially for crossbreds which were collateral damage in this weeks’ auction market falls. Bets are on to see if prices continue to drop or level out again so it’ll be interesting to see developments in the coming weeks.

For 19 micron wool, one trade was dealt for June and agreed at 2,185¢. In 21 micron, two trades were dealt, one for June at 2,170¢ and one for August at 2,130¢.

In course fibers, four trades were dealt for 28 micron, two in June, agreeing at 1,100¢ & 1,200¢; one for January 2020 at 1,020¢ and one for August 2020 agreed at 1,000¢.

The wool market tracked lower for Merino types this past week however crossbreds bucked the trend and continued to rally.

As for exports, Chris Wilcox, NCWSBA, reports that export volume is down 12% for the season to March, however as a reflection of the strong market export value is up by 3%.

Chinese activity was even more effected, with season to date exports down 17% and export value down by 1%. This could be viewed as a concern; our major customer taking less wool, or it could be viewed as a positive; other markets stepping in to spread the demand.

The Eastern Market Indicator (EMI) eased by 8 cents on the week to close at 1,952 cents. The US$ fell by almost 0.5 cents to US $0.697 and as a result, the EMI in US$ terms fell by 15 cents to end the week at 1,361 US cents (Table 1).

The Western Market Indicator (WMI) after gaining 28 cents last week, gave up 31 cents to 2,062 cents this week.

It was a much reduced offering of 32,801 bales that came forward this week. Growers passed in 12.9% of the offering. The break up was 9% in Sydney, 12.9% in Melbourne while Fremantle sellers passed in 18.1% of bales offered.

This meant 28,576 bales were cleared to the trade, almost 12,000 fewewr than last week. In the auction weeks since the winter recess, 1,263,967 bales have been cleared to the trade, 230,624 fewer than the same period last year. The average shortfall cleared to the trade compared to the same time last year now sits at 6,406 bales per week fewer.

The dollar value for the week was $58.3 million ($82.9 million last week) for a combined value of $2.907 billion so far this season. A simple calculation of $ value divided by bales sold gives us $2,039 per bale across all types for the week.

The only positive moves were for the Crossbreds, gaining another 10/15 cents but mainly confined to the 28 micron and finer. While Cardings in Melbourne & Sydney were largely unchanged, however Fremantle fell 25 cents.

The week ahead

The roster for the next few weeks is beginning to show the threatened decline in supply. Next week just 33,361 bales are rostered for sale with all centres selling on Wednesday and Thursday. The following weeks 30,719 & 33,360 bales are currently forecast.

A busy week on the forwards market, the first in quite a while, with 14 trades agreed. The lions share of the market has leant heavily into medium fibers, where 9 trades for 19 micron were agreed, most looking far into the future.

In the fine fibers, one trade was agreed for 18 micron in June for 2,340¢.

For 19 micron wool, one trade was dealt for July at 2,245¢. For 2020, two trades were agreed for July at 2,150¢, one for October at 2,155¢ and one for November at 2,125¢. For 2021, one trade was dealt for January, March, April and June, all agreeing at 2,155¢, a true testament to the flat forward curve.  In 21 micron, one trade was dealt for June at 2,250¢.

In course fibers, one trade was dealt for 28 micron in June, agreeing at 1,250¢ and one for February 2021 at 935. One trade was dealt for 30 micron in August for 900¢.