Tag: Wool

Low yields weighing on the market

The market was again cheaper this week, with the large supply of “low yielding” wool continuing to attract discounts negatively impacting on the EMI as buyers struggled to fit these types into orders. While the drought impact has caused yields to be lower, this week in Mecardo Andrew Woods reported that yield was 3 – 4% lower compared to previous droughts.

The Eastern Market Indicator (EMI) eased again by 32¢ this week to close at 1,139¢, while the Australian dollar also softened to US$0.69. The EMI in USD terms also fell 31¢ to 782¢. Fremantle again had a recess with the Western Market Indicator unchanged at 1,247¢.

Turnover was back below $20 mill to $18.50 million this week, however, the average bale value of $1,307 was $150 per bale up on last week, taking the season to date value to $1,941 million.

After growers withdrew 7.2% of the offering, just 15,800 bales came forward this week, and with a pass-in rate of 10.8%, 14,146 bales were sold.

It was noted this week that area planted to crops has increased year on year, with NSW up 95% on last year to 3.7 million hectares. (Read about this here on Mecardo).

This is confirmation of our concerns that the continued shift to grain production will continue now that the drought has broken, with the challenge for Merino sheep to regain lost acres going to be difficult. Any increase in wool supply in the medium term is likely to be modest at best.

The Crossbred sector ended a positive run with across the board falls of 20 cents.

Cardings proved more resilient despite Sydney reporting a 16-cent fall, Melbourne was dearer by 7 cents.

The week ahead

Next week Fremantle resumes and all centres sell on Tuesday & Wednesday with 30,240 bales on offer.

Supply low, AUD strong & market positive

While the Wednesday opening to the market was positive, Thursday saw a retracement to produce an overall cheaper market.

The AUD was strong, hurting buyers buying capacity, while a concerning report was that there was insufficient supply of good yielding wool to fill orders. The flip side to this was that the large offering of low yielding wool weighed on the market with buyers struggling to fit it into orders.

The Eastern Market Indicator (EMI) gave back 12¢ this week to close at 1,171¢. The Australian dollar was quite strong hovering around US$0.70, with the EMI in USD terms falling by 8¢ to 813¢. With Fremantle back selling this week, the Western Market Indicator played a bit of “catch-up” finding an 8 cent lift to settle at 1,247¢.

Turnover increased to $25.02 million this week with all centres involved, however, the average bale value of $1,150 was $200 per bale back on last week, taking the season to date value to $1,922 million.

The softer market influenced a lift in the pass-in rate to 12.1% nationally, 5.4% higher than last week’s level. This resulted in 19,146 bales clearing, almost 5,000 more than last week.

This week on Mecardo, Andrew Woods looked at the sheep flock and noted “The Australian sheep flock has moved into an expansionary phase, based on early 2020 rainfall.” Of course, any continued expansion from here (and consequently changes on the sheep flock) will depend on winter/spring rainfall in the key sheep regions.

While Fremantle played catchup on last week’s sales, overall the market was cheaper, ending its two-week positive run. The Crossbred sector was the shining light rising against the general trend and supporting the EMI to some degree.

Cardings continued to improve also and posted on average a 14¢ lift average across the all centres.

The week ahead

Next week’s national offering declines to just 16,800 bales with Fremantle not offering. Sydney & Melbourne will sell on Tuesday & Wednesday only.

Supply low, AUD strong & market positive

The market opened with a positive result on Tuesday as Sydney played catch-up to the strong finish of last weeks market, while Melbourne was quoted as ‘firm’.

This trend continued to the close on Wednesday with solid competition and a good clearance rate despite the headwind of a surging AUD.

The Eastern Market Indicator (EMI) lifted another 15¢ or 1% this week to close at 1,183¢. The Australian dollar was quite strong up 3 cents to US$0.694, which elevated the EMI in USD terms by 44¢ to 821¢. This caused a 5.3% lift in US$ terms. With Fremantle not selling, the Western Market Indicator remained at 1,239¢.

Turnover this week tipped below $20 mill for the first time in memory to $19.62 million as a result of the smaller offering. This moved the average bale value to $1,368 per bale, a lift of $80 per bale, taking the season to date value to $1,897 million.

With the solid market, the pass-in rate was lower at 6.8%, 1.1% below last weeks level. This resulted in 14,337 bales clearing, 3,000 fewer than last week.

AWTA volumes fell heavily in May (down 28.5% in farm bales). The season to May, volumes are down a milder 8.7%.

This week on Mecardo, Andrew Woods looked at the relationship of AWTA test volumes compared to Auction sales in order to get a view on the build-up of grower stocks (view here).

Auction sales for the season are well below the standard 85% of AWTA volumes, tracking at 72% of AWTA volumes in 2019-2020. This implies that farmer stocks have increased by around 13% of annual production in 2019-2020. Given the fall in demand, this outcome is not surprising.

While Sydney played catchup on last weeks closing sale day, the market was fully firm, an impressive result given the rampaging AUD. Less than 2,000 bales of Crossbred wool came forward and met solid demand, with 26 – 28 MPG indicators posting 12 – 41¢ gains.

Cardings joined in the spirit and posted on average a 24¢ lift across the two centres.

The week ahead

Next week’s national offering increases to 24,140 bales with Fremantle joining in with a 4,800 bale offering. Sydney & Melbourne will sell on Wednesday & Thursday while Fremantle will offer on Wednesday only.

The increased demand this week despite a higher Au$ should support the market next week.

34 micron prices low against polyester staple fibres

Key points:

  • 34 micron prices are trading at 25 year lows in Australian dollar terms.
  • In US dollar terms, 34 micron prices are trading near the low levels reached in the last 1990s and early 2009.
  • In US dollar terms the 34 micron price has returned to low levels of basis to polyester staple fibre prices, similar to that seen in the late 1990s and the middle of the last decade.

Broad crossbred prices continue to plumb new lows, a mere five years after they had spent five years (2010 to 2015) trading at stratospheric levels. This article takes a look at an Australian 34 micron prices series and its relationship to polyester staple fibre prices.

In Figure 1 a 34 micron price series from Australian auctions is shown running from mid-1995 onwards, along with a polyester staple fibre (PSF) price series. In Australian dollar terms, the 34 micron price series is at 25 year lows, close to 200 cents which is well below previous periods of low prices such as the late 1990s and the middle of the last decade. The PSF price series bubbles along at appreciably low levels.

Figure 2 shows the same series as Figure 1, but in US dollar terms as the supply chain would generally view them. The high prices from 2002 in Figure 1 disappear (a function of exchange rates), as do a lot of the boom price levels of 2015, again a function of exchange rates rather than demand. The current low price for 34 micron also changes, as in US dollar terms it is on par with the lows of the late 1990s when apparel fibre prices were generally depressed for an extended period (fine Merino wool was one notable exception at the time).

Note that the 34 micron and PSF price series follow similar trends and cycles, except for 2012-2015 when 34 microns buck the trend and trade at high levels. During that period most apparel fibre prices trended lower.

In Figure 3 the relationship between the 34 micron and PSF prices series is shown in US cents per kg (left hand axis) and as a simple price ratio (right hand axis). In terms of the price ratio, the low point of the past 25 years has been around 1.5-1.6. This is the ratio the 34 micron has fallen to, well down from the ratio of 3.5-4 reached in 2015-2016. In terms of the premium in US cents per kg terms, 50-70 cents has been the low reached in the late 1990s and again briefly in early 2009. The premium has shrunk to the low range again.

Energy prices have fallen this year, which will put some downward pressure on PSF prices. The PSF price is approaching the low levels reached in the depressed late 1990s, so the scope for further downward movement in the PSF is hopefully limited. Stabilisation in PSF prices looks to be required to help the 34 micron price steady.

What does this mean?

In proportional terms, farmers have been building stocks of broad crossbred wool on par with other micron categories this season. While that has not been a successful strategy, it may start to be worthwhile, given the low price level in US dollar terms, the low basis to polyester staple fibre price, and the (hopefully) limited downside for polyester staple fibre prices. Time will be the key to a recovery and that will require two components which are, firstly a pickup in economic terms and secondly a pickup in demand for broad crossbred wool in relation to other fibre prices.

Market has a positive bounce

While last week the MPG indicators across the board were showing negative, this week it was a “sea of green”. The market performed strongly on a small offering. From the open in Sydney & Melbourne, through to the final sales in Fremantle on Wednesday, it was obvious that buyer sentiment had improved.

The Eastern Market Indicator (EMI) lifted 15¢ or just over 1% this week to close at 1,170¢. The Australian dollar was also up almost a full cent to US$0.664, which elevated the EMI in USD terms by 21¢ to 777¢. The Western Market Indicator also posted a good gain, up by 25¢, fully regaining last weeks fall to close at 1,239¢.

Turnover this week was lower at $22.24 million as a result of the smaller offering. This moved the average bale value to $1,282 per bale, taking the season to date value to $1,878 million.

The pass-in rate was lower at 7.9%, 4.7% below last weeks level after growers withdrew 11.2% of the offered bales pre-sale. This resulted in 17,343 bales clearing, just over 1,000 fewer than last week.

Apparel fibre prices peaked in mid-2018 and then began a cyclical downturn. By late 2019 the average Merino micron price was down by 29-30% in both AUD and USD terms, a modest down cycle over 18 months. Then came the pandemic.

As Andrew Woods wrote on Mecardo, “Since January the price of Merino wool has fallen by 27% in US dollar terms and 23% in Australian dollar terms (monthly averages). The pandemic downturn is a separate and additional downturn to the already existing down cycle from 2018.”

The gains this week in the market were “across the board” with all MPG’s rising, however, notable rises were in the 18 to 21 MPG range with 20 to 30 cent gains. Fremantle followed the eastern states lead on Tuesday with 29 – 38 cent gains across its micron range, as well as a 37-cent lift in the Cardings.

A small offering of Crossbred wool came forward and met solid competition, with the strongest rises coming in the 26.0 to 28.0 MPG range. Cardings followed the combing wool lead, with 20, 16 & 37 rises in Sydney, Melbourne & Fremantle respectively.

The week ahead

Next week’s national offering is reduced again to 17,136 bales with only Sydney & Melbourne selling on Tuesday & Wednesday.

Better buyer sentiment and a reduced offering should provide support to the market.

Positive note short-lived

The modest gains posted last week proved short-lived. The opening day in Melbourne provided some optimism but the market was unable to maintain the early price improvement to eventually end on a disappointing note.

The Eastern Market Indicator (EMI) fell by 24¢ this week to close at 1,155¢. The Australian dollar was up 0.73¢ to US$0.655, which cushioned the EMI in US$ terms, only falling by 7 cents to 756¢. The Western Market Indicator also fell, losing 23¢ to close at 1,214¢.

Turnover this week was down marginally at $23.76 million or $1,287 per bale, taking the season to date value to $1,856 million.

The pass-in rate was up marginally on last week to sit at 12.5%, after growers withdrew 8.6% of the offered bales pre-sale. This resulted in 18,455 bales clearing, just on 3,000 fewer than last week.

While the season to date weekly average sale clearance is at 27,595 bales (34,400 same period last year), the past 10 weeks has seen the clearance volume slip to an average of 22,600.

Supply is remaining constrained as growers wait and hold wool, with the expectation (hope?) that prices will recover soon. Many are supported by recent high price sales of clips over the past 2-3 years, as well as strong sheepmeat sales. However, this can only last for so long. We are now seeing growers increasingly concerned about the short and medium-term outlook for prices.

The falls were spread mainly across the Merino MPG’s with 8 to 64 cents falls reported, in fact, the EMI would have reported a larger fall if not for the fact that the Crossbred section remained unchanged.

Nationally just 2,342 bales of Crossbred designated wool was offered with 2,070 selling, with the Cardings section also clearing a modest 2,100 bales. This reduced offering pushed the Cardings indicators up in all centres, with an average 28¢ lift.

The week ahead

Next week’s national offering is a slightly smaller offering of 20,359 bales with Sydney & Melbourne selling on Tuesday, while Melbourne & Fremantle will offer on Wednesday.

To say we are in unchartered waters is an understatement, with a buying trade operating under severe limitations.

Market takes a breather

After four weeks of losses and continuing uncertainty as to the full impact of the COVID-19 effect on the wool supply chain, this week the market settled posting modest gains. The market has a range of differing circumstances; Merino wool with good measurements is sought after, while lower style types and crossbred wools are not receiving anywhere near the same interest.

The Eastern Market Indicator (EMI) lifted by 9¢ for this week to close at 1,179¢, while the Australian dollar was up 0.44¢ to US$0.676, which contributed to the EMI in US$ terms also rising by 11 cents to 764¢. The Western Market Indicator didn’t fare as well, falling 9¢ to close at 1,237¢.

Turnover this week was up slightly at $27.79 million or $1,303 per bale, taking the year to date value to $1,831 million.

The response to the stronger buyer interest in the market was the halving of the pass-in rate, this week down to 8.8%, resulting in 21,315 bales clearing, 654 more than last week. Contributing again was a large withdrawal prior to sale of 12% of the original offering. AWEX noted that the national offering is 10.9% lower when compared year-on-year.

The rises were across the board for Merino types, with stand-out rises of 40 cents plus for 16.5 MPG in Sydney, as well as the 18 MPG in Melbourne & Fremantle along with the 19 MPG in Melbourne. Crossbred types were generally 20 cents off the pace, while Cardings held steady in all centres.

The week ahead

Next week’s national offering is just 21,690 bales with Sydney & Fremantle only selling on one day while Melbourne will offer on Tuesday & Wednesday.

Unfortunately, the early strength this week did not continue to the close of selling, with Melbourne and Fremantle reporting an easier trend on the final day.

The trend (down) continues

It is difficult reporting weekly on the continuing demise of the wool market, with price decline now seemingly a weekly occurrence. AWEX noted that at least the market has been able to continue “with all industry stakeholders working together to ensure that wool auctions continue”.

While this is certainly a good effort, allowing producers to get wool to market and exporters to buy, it is small consolation. In the ten selling weeks since the beginning of March, the EMI has fallen 390¢.

The Eastern Market Indicator (EMI) fell by 55¢ for this week to close at 1,170¢, its lowest close since 2015. The Australian dollar was down for the week by 1.02¢ to US$0.643, which caused the EMI in US$ terms to come off 48 cents to 753¢. This puts the US$ EMI at its lowest point in almost 10 years. The Western Market Indicator was broadly in line with the east, falling 64¢ to close at 1,246¢.

Turnover this week was $24.83 million at $1,201 per bale, taking the year to date value to $1,804 million. For contrast, in the same week last year the 28,500 bales sold returned $58.3 million at an average of $2,039 per bale. The year on year comparison of sales value is down a massive $1.1 billion impacting not only on growers incomes but on all sectors of the industry.

Despite the weaker market, the pass-in rate was lower this week at 18.5%, resulting in 20,661 bales clearing, 3,643 more than last week. Again a large withdrawal was evident with 11.8% of the original offering withdrawn prior to sale. Season to date there has been on average 27,990 bales sold per selling week. This is well down on the 32,800 average for last season.

Again the falls were across the board, with Merino types losing 30 – 87¢ and Cardings down on average 27 to 44¢. The note from the X bred section was again that poorly prepared clips we difficult to find buyer support.

The week ahead

Next week’s national offering increases slightly to 25,660 bales. AWEX report that due to limited quantities Sydney and Fremantle both will have one-day sales, Sydney selling Tuesday and Fremantle selling Wednesday, this is a move designed to avoid Melbourne selling in isolation.

The numbers deteriorate

It is now almost a weekly theme for the wool market to post lower prices, with high pass-in rates and pre-sale seller withdrawals contributing to low volumes purchased by exporters. Much of the blame this week can be sheeted home to the strong Au$ however this was no consolation for growers who again witnessed a tough market to sell in.

For April only 140,386 bales were offered with just 77,703 bales sold after 18.6% of the offering was withdrawn before sale and a further 19.0% passed in. For April the EMI averaged 1273 cents. Over the same period last year 143,000 bales were sold to the trade with the EMI averaging 1946 cents.

As a result of the depressed market there is a growing stock of wool in broker stores as reported by Andrew Woods on Mecardo, this is estimated to now be up to 11% of annual production.

The Eastern Market Indicator (EMI) gave up 47 cents for the week to close at 1,225 cents. The Australian dollar was quite strong rising by 2.26 cents to US$0.663, which supported the EMI in US$ terms, down just 2 cents to 800 cents. The Western Market Indicator also came back 48 cents to close at 1,310 cents.

Turnover this week was $21.92 million at $1,288 per bale, taking the year to date value to $1,778 million.

The pass-in rate was higher at 25.7% nationally with 17,018 bales cleared to the trade. 10.3% of the original offering was withdrawn prior to sale with Sydney & Fremantle selling only 3,606 & 3,775 bales respectively. Season to date there have been on average 7,023 bales fewer sold per selling week compared to last season.

AWEX reported that the falls were across the board, with Merino types losing 39 – 89 cents and Cardings down on average 24 cents. The 32 MPG fell to 271 cents, hitting its lowest point since AWEX reporting began in 1997/98.

The week ahead

Next week a national total of 26,924 bales will be offered with Fremantle selling only on Tuesday, Sydney Wednesday only and Melbourne on both days.

As if we needed any reminder, these are highly uncertain times and definitely not providing any levels of confidence to the wool market.

Wool falls and strong sheepmeat bad news for wethers

Key Points

  • Covid-19 has seen the fall in wool prices accelerate, while sheepmeat values are still strong.
  • The 19 MPG is at all-time lows relative to the ESTLI.
  • Low returns from wool might see a renewed push to dual purpose and crossbred sheep.

The Coronavirus has seen plenty of volatility hit all markets, and wool and livestock have not been immune. Wool has copped the brunt of the fall, while sheepmeat values have largely held their ground. The flock rebuild is on, but the spreads between meat and Merino wool might influence what sort of sheep are added to the flock.

Wool prices have tanked in the last month, losing 18% to hit a three and a half year low. Wool prices are inherently cyclical, and this has once again been proven, with some help from the COVID-19 crisis.  Supply hasn’t increased, but demand has evaporated.

Lamb and sheepmeat prices are less impacted by cycles, with consistently improving demand seen over the last 8 years. Lamb demand may weaken with the COVID-19 crisis, but tight supply is currently seeing prices hold firm.

The difference in recent price movements has seen an all-time low reached for fine Merino wool prices relative to the Eastern States Trade Lamb Indicator (ESTLI).  Figure 1 shows the Southern 19 Micron Price Guide (MPG) and the ESTLI, and the 19 MPG premium over the ESTLI in percentage terms.

We had to estimate the ESTLI for recent weeks, but the results are unlikely to change much. Last week the 19 MPG was at just a 69% premium to the ESTLI, the lowest relative level on record. It has been rare for the 19 MPG to be lower than double the ESTLI, while in 2019 the average was 173%.

The 10 and 20 year averages are both between 170 and 180%, which has been enough to see the decline of the Merino wether, and to a lesser extent Merino ewes.  Crossbred sheep have replaced Merinos, and the current dynamic is likely to see this continue.

Figure 2 shows how relative prices affect modelled income per DSE. The model uses 5kgs of 19 micron wool with 72% yield for wethers, which are 1 DSE.  For Merino ewes, the numbers are based 4.5kgs of 19 micron wool, and 0.7 lambs weaned at 30kgs at 1.5 DSE. We know a lot of Merino producers do better than this but this is the national average.  Crossbred ewes are producing 4kgs of 32 micron wool yielding 66% and 1.25 lambs weighing 35kgs, but they equate to 2 DSE.

There is little arguing with Merino wethers having record low income compared to both Merino and composite ewes. Merino ewes meanwhile have rarely had income more than $10 per DSE lower than crossbred ewes, but that is where it sits now.

What does this mean?

With Merino wethers making well over $150 per head, it will be hard to justify holding onto them for the wool cut this year. Abundant feed in areas recovering from drought will help, but if the price spreads between wool and sheepmeat persist it will continue, and possibly accelerate, the move towards dual purpose or meat sheep at the expense of fine wool Merinos.

A majority of joinings had taken place before COVID-19 hit, as we aren’t going to see impacts on flock structure, and lamb supplies until next year. The lower wool price might help support sheep supplies, however, which are expected to be very tight this year.