Erratic price movements in the Merino fleece and skirting sectors and stable pricing in the carding and crossbred sector was the trend at Australian wool auction markets this week. The market in the Merino fleece initially struggled to find a level where buyers were happy to support and prices for wools broader than 18 micron drifted downward by 30ac clean/kg. This negative trend failed to last more than a day and prices immediately moved back to the positive direction on the final day and recovered more than half of the previous day’s losses.

The AWEX Eastern Market Indicator (EMI) concluded the week at a level of 1501ac/clean kg, a fall of 11ac/clean kg from the pre Easter level. A similar move of 10usc lower was recorded for the EMI when measured in USD as the foreign exchange rates of AUD v USD remained exceptionally stable since auctions were last conducted.

The pre sale talk on show-floors centred around the perceived over abundance of wool being offered this past week, with at one point a figure of 58,000 bales being bandied about. The eventual volume of 52,000 bales offered was subsequently easily absorbed by the trade, although the larger figure did give rise to some of the blame for the uneasy start. Some of industry commented that the initial price deflation was largely due to more of a human sentiment element rather than the considered demand examination that kicked in on the final day from both overseas and local participants.

A larger pass in rate of around 11% was evidenced as sellers chose to generally resist any lower price levels offered. Of most significance was that nearly 21% of the Fremantle Merino fleece offering was unable to meet the growers reserve and a further 8% being withdrawn from sale prior to auction. With the kick in the market on the final day, these protective decisions probably looked good in hindsight.

The superfine and ultra fine Merino sectors (wools finer than 18.6 micron) were unaffected by any negativity throughout and traded strongly all week. European buying was dominant on anything exhibiting the better specifications with some lower styled lots not usually included in the main buyers orders appearing to be tolerated. The market price falls then gains were centred around the lower quality wools of this type area and all wools 19 micron and broader.

Once more the local trading exporters were the major buyers, but some very strong purchasing from some of the major Chinese top makers also became apparent as the week progressed.

All crossbred and carding types sold under an extremely stable environment, and particularly odd given the erratic nature of the Merino fleece and skirtings market.

Next week at Australian auction sales there will be around 40,000 bales on offer with all three selling centres in operation.

AUD Commentary - SAW

The Australian Dollar slid to a 3 month low on Thursday evening at .7440, before recovering marginally to .7465 on Friday. 8 days ago the Aussie was trading comfortably at .7580, before a fresh slide in some key commodity prices, especially Iron Ore saw traders readjust the AUD views. The sharper part of the sell-off this week occurred after the release of the quarterly inflation data on Wednesday, which was weaker than expected and has stirred debate over whether the RBA may eventually be forced to cut rates again, or at least be forced to leave them on hold for the rest of the year, while in both the U.S and Europe growth and inflation, and therefore rates will be on the rise. On Thursday night also the USD strengthened after the release of Donald Trump’s tax plan. On Thursday also the governing council of the European Central Bank (ECB) said it would leave monetary policy on hold in April, with a deposit rate of -0.4% for banks, a base interest rate of 0.0%, and a quantitative easing (QE) program of up to €60 billion per month. The Eurozone is now growing faster than both the UK and the USA, with headline inflation hitting 2% last month. The reverse is true for the Bank of Japan, which has lowered its inflation forecast for the year, indicating an unwind of the unprecedented monetary easing remains distant. The BOJ had an inflation target of 2%, but said that real inflation is projected for fiscal 2017 at 1.4%, down from 1.5%. Technically the Aussie has minor support at .7440 then .7380, with resistance at .7610, a break above is likely to see a rally back to key resistance at .7750. For the moment the AUD is caught in a fresh downtrend, and is likely to retest .7740.

Industry News

AWI sponsors the annual AWI Nuffield Woolgrower Scholarship, in collaboration with Nuffield Australia. The scholarship is a unique opportunity for somebody in the wool industry to study a particular subject of interest, and increase practical farming knowledge and management skills and techniques in the Australian wool industry. Applications for the 2018 round of scholarships close on 16 June 2017.

Southern Aurora Wool forwards report

The volatile nature of the market played out in both the physical and forwards this week on the return from the Easter recess. The weight of wool on the market saw prices retract on opening but steady by week’s end. The forward markets remained firm with support levels into the end of the season unchanged. 19.0 micron created new highs trading at 1870 and 1890 respectively. Spring levels ignored the fall in the spot market and traded above the most recent support in both 19.0 and 21.0 microns. The key 1400 level was reached on both September and October on 21.0 but buyers were hesitant due to the volatile nature of the market. Implied volatility is running at over 23% (the highest for nine months) and has more than doubled since January. This could bring opportunities in the forward markets as exporters look to keep positions tight in this volatile environment.