ON THE RISE: The wool market has taken off hitting a new record high.

Wool market hits new record | Elders

The wool market has taken off hitting a new record high.

IT seems that 2018 has begun exactly where we left off at the close of proceedings in 2017, with the wool market in Australia bounding out of the blocks last week to add a further 58c to the already record level of AWEX’s eastern market indicator.

Courtesy of a stronger local currency and a weaker US dollar over the past three weeks the impact in US dollar terms was greater with a gain of 82c for the EMI.

AWEX’s northern market indicator closed up 59c on 1841c. The 17 micron indictor closed on 2538c, 18 micron 2300c, 19 micron 2086c, 20 micron 1883c, 22 micron 1642c, 28 micron 785c, and 30 micron 590c.

The slightly bemused European fraternity who are basically wondering when the market will have a reality check also saw a Euro58c rise this week. The majority of Merino fleece types added close to a dollar during the three selling days this week, with skirtings and cardings only rising by around 50c, crossbreds continue to struggle and only managed to gain a few cents.

The finer edge of the crossbred sector is being dragged up slightly by the Merino market action, but the coarser edge is languishing and seemingly being overcome by increasing levels of stock coming onto the market both here and across the Tasman.

Rapidly declining stocks of Merino combing and carding types in Australia and also in the Cape, combined with practically zero greasy stock in the early stages of the processing pipeline continue to initiate buy orders from topmakers and indent operators. Normally the buying instructions are given with precise price and quality parameters, however given the shortage of supply scenario and the recent market movements simple “buy” orders are being thrown about.

Exporters operating in the market are able to sell almost any type they can offer and it is only further up the chain that the wheels stop turning. Some tops and yarn and no doubt fabric and garment are being sold, but certainly the greasy wool prices cannot yet be converted or maintained by those sitting closer to the consumer. Merino is well on the way to becoming a $20 fibre as AWI chief executive Stuart McCulloch recently pointed out, but that is a longer-term goal not something that anyone wants to achieve in the next three weeks.

Other commodities and textile fibres are also now rising quite strongly, which may help merino from slipping back too much if we do see a correction but in the meantime the market would do well to take a ‘chill pill’ and give operators a chance to adjust to the new levels. Comments such as ‘crazy’, ‘how can I offer a price’ and ‘I give up’ were common among the international fraternity this week. For those who have been around the trade for a while it is something they have seen before, followed by an inevitable equally spectacular correction, but for some of the newer players the current market is awesome.

Anyone selling fabric or garments where the seasonal price was basically set in July/August is probably not thinking this current price is awesome. In the overall scheme of things having Merino prices push up towards where cashmere sits is a good thing. Keeping them there is now the challenge and no doubt much debate will be had in coming months about volatility of supply and how it should be managed so that buyers and processors can manage their requirements, and growers can plan their harvesting and selling strategies – or perhaps that is simply called the futures market.

The industry will no doubt manage the internal factors well enough, and at a glance everything looks pretty rosy into the future. The ever-present proviso being world economic stability and the confidence that stems from such. HSBC’s morning note alerted us to the probable fake news overnight that China was possibly considering halting or slowing its purchasing of US treasury bonds.

Financial markets have not yet created an effective filter for fake news and so reacted accordingly by dumping US dollars in favour of the other major currencies. While it may be fake news, it does make a degree of sense that China would be rebalancing its foreign reserves as the global position of the US diminishes under Mr Trump’s stewardship.

Superfine: Although Sydney is conducting a three day sale this week the volumes of superfine Merino on offer are getting smaller, which will keep the pressure on prices. From a technical perspective there is potential for a further 10 per cent rise but if it happens too quickly the correction will be just as dramatic.

Medium Merino: Similarly supply is the number one driving force behind the market at present, but the futures market would indicate that we are not exactly standing on the edge of a cliff.

Crossbreds: Again supply is the key – unfortunately in this case over-supply is the problem. There doesn’t appear to be any increase in demand in the pipeline so it could be a relatively difficult year for the broader, coarser, hairier animals.

- Bruce McLeish is Elders’ northern wool manager.

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