Whilst the market price levels fell on most type categories this week at Australian wool auctions, the result was considered by most participants as surprisingly strong. The Eastern Market Indicator (EMI) fell 1.5% or 22ac clean/ g to 1412ac clean/ g. In AUD terms, the current level of the EMI is over 10% higher than at the same period last season, but when expressed in US dollar terms, it is far more impressive at 163usc clean/ g higher or 18%. Adding weight to the overall improvement in demand for all Merino types is that this has occurred in a season that has offered almost 65,000 bales more or 7% more volume compared to last year.

The start of the shortened selling wee was met with resounding negativity as to the immediate prospects of prices, in particular those wools broader than 19 micron. The continued strengthening of the AUD against the USD, exporters finding it difficult to sell that micron range into China and offerings containing harder to place wools were all conspiring against a favourable outcome. Those expectations proved accurate with the first day's selling saw all types succumb to a lack of enthusiasm. Those initial prognostications abated and turned very quickly though, as a much better final day of selling saw falls halt, the mar et consolidate and then many types starting to be quoted into the dearer category, albeit mostly the better types. It appeared the renewed confidence came about by local exporters position covering, and competition from Chinese indents, rather than heavy forward buying from overseas.

In the Merino sector, it was quoted that nearly all wools were adversely affected, but many of the better types finer than 19 micron were still being well sought and in fact, were dearer at the close than the commencement of the week . The mid range and lower types were cheaper in these qualities, making the overall micron quote fractionally off. It was a different story though on wools 19.5 micron and broader as the wee eliminated around 30ac clean/kg on those descriptions. Once again, most of the better types were much less affected. It was very interesting to see that the largest Chinese indent buyer remained steadfast in their strong buying throughout the week and were a constant force in the market from the outset.

The Merino skirtings market sold in a similar trend to their fleece counterparts, with the exception of some heavier VM (vegetable matter) types of around 10% and more, which fell off by around 35ac clean/kg. Cardings were all quoted off their record levels, but only a few cents cheaper in reality, mirroring the stronger exchange more-so. Crossbred wool of all descriptions continue to struggle to find a firm basis on which to consolidate and then recover. Large volumes are being held as buyer stocks and more of these types are being produced in large numbers globally given the booming sheep meat market. This particularly applies to those wools broader than 29mi-crons. Prices were on average 15 to 20ac clean/ g lower for the week.

42,500 bales next week should see the market trade similar to this wee and possibly consolidate further. The mini recovery seen on the final day this week is a good signal but additional new business is needed to underpin the market positively into the coming months.

AUD Commentary - Source SAW

The AUD eased to .7528 on Friday, down from Tuesday’s high of .7608, as the USD rebounded from 7 week lows, lifted higher against the major currencies on up beat economic data. The USD was well supported by the equities mar et which has rallied to two consecutive record highs this week on strong corporate earnings and investor optimism of U.S President Trump’s plans for new public spending. The Dow bro e through the 20,000 level yesterday, to close this morning at the new record of 20,101.00. U.S Markets have also been emboldened by the protectionist policies of Trump, eg the cancellation of the TPP. In Australia, the release of the key CPI Data showed inflation weaker than expected with CPI rising only 0.5% against the markets expected 0.7%. Analysts say any change to on rate change on rates by the RBA is at least six months away. China’s GDP numbers shows the worlds second biggest economy growing faster than expected, helping fuel a rally in many commodities such as Cotton, Iron Ore, Coal and Oil prices. So far this year, the AUD has been one of the worlds stronger currencies, rallying 445 pts from its 2017 low of .7163, traded on 1st January, to a high this Wednesday of .7608.

Southern Aurora Wool Forwards Report

Another volatile wee in the forwards as the physical auction too it’s expected correction. Fine wools continued to dominate interest again with 18.0 micron maintaining their solid levels out to November at 1780. Options and outrights traded in the 19.0 category with growers keenest on nearby options as they looked to protect against the market correction. The 1700 strike traded at 35 cents in both February and March. Prices in the 21.0 were more subdued. The 21.0 index has dipped 55 cents in the last two weeks and growers looking to hedge above 1400 into the latter part of the season finding demand hard to come by. April traded at 1402 and new season (August) dropped to 1350. This still presents good historical values but 30 cents off the highs of two wee s ago. Pleasingly some buying demand has returned on the Crossbreds with 28.0 trading close to cash from Mar to June.

With China celebrating New Year this coming week we expect demand signals to be muted. Hopefully we will see the auction market continue to form a base and both buyer and seller look to manage the likely continued volatility as we head towards the autumn.