Extraordinarily strong price rises in the Merino sector featured at Australian wool auctions this past week. Gains of between 3 to 5% were recorded across the 17 to 22 micron area as 3 or 4 of the major buyers exerted extreme purchasing pressure in the suddenly reduced offerings. The 38,000 bales on offer appeared to be short of what the trade demand currently requires, hence the upward spiralling price movements.

The AWEX Eastern Market Indicator (EMI) concluded the week at 1544ac/clean kg, a hefty rise of 43ac/clean kg, almost a 3% gain. When measured in USD the move was somewhat diluted as the foreign exchange rates went over 1% in favour of those buying in USD. The USD EMI still managed a 20usc gain to 1144usc clean/kg.

The market talk pre auction centred around opinions that manufacturers are still struggling to satisfy their demand needs, particularly those using Merino types in their production. Many in industry believe that whilst we are very much still in a hand to mouth operational cycle, some manufacturers are actually still trying to catch up after global stocks of raw material had been run down too far. The Merino wool price at present reflects a restocking of the supply chain and is likely to continue until all users are set. On the other hand the comparatively lower price on the crossbred sector is indicative of stocks held and a reasonably full chain from greasy through to yarn, although this is reportedly being depleted.

Traders reported strong purchasing interest from both India and China but many of our local exporters were extremely reticent to go short and take on some of the reasonable prices being offered. Much of the prompt shipment needs was therefore transferred to indent operators where possible and arrangements with Aussie buyers were in place. On the other side, the local buyers pushed to buy early to add to any existing stocks of greasy wool, knowing that advantageous sales were available once containers were bought and available to sell.

A very limited supply of the superfine and ultra fine Merino sectors (wools finer than 18.6 micron) were again on offer and the traditional European buyer was again dominant on all the good wools available. Other trader exporters for Europe were rather subdued as buying activity from those operators was appearing limited, indicating demand has been met for immediate shipments to those zones as they head closer towards their summer holiday and slow down. It is also somewhat significant in that the South African wool market is close to the end of their wool selling season. As they have a 2 month sojourn, some of the demand traditionally for that market will swing to Australia to fill any shortfalls in raw material required.

All crossbred and carding types sold under an extremely stable environment again and prices could be described as being firm to unchanged throughout, but cheaper in USD terms.

Next week at Australian auction sales there is less than 40,000 bales on offer between the three selling centres. In fact the next 3 weeks has no sale week above the 40,000 bale mark.

AUD Commentary - SAW

It was another big week for the Aussie Dollar, as it fell steeply on Thursday to a three month low of .7383, from its highs of Monday and Tuesday of .7540, where it had been quietly trading. Today, Friday the AUD has firmed a little to .7416. The fall in the Aussie was triggered after the U.S. Federal Reserve left interest rates unchanged at 0.75% its board meeting on Wednesday, as expected, but in its commentary it said another rate hike was imminent, and that two more rate hikes were likely in 2017. The Aussie has also tumbled on the cross-rates to a 4 month low against the Yen, Euro, NZD and Canadian Dollars. The Aussie was further rattled after a speech yesterday by the RBA Governor Philip Lowe who expressed great concern over double-digit growth in household debt amid weak very income growth. In the Brisbane Speech he said he was particularly worried by the ” high concentration of interest-only loans,” Dr Lowe said that a likely downturn in housing prices could turn a manageable contraction in the economy into “something more serious.” The RBA Chief reminded that the interest rate will not remain at a record low forever. “ however he also suggested that weak wages income would see policy remain on hold, possibly for rest of the year.

Technically the Aussie bounced of good Chart support at .7380, and below that the next key support is at .7318. On the top side there is overhead resistance at .7445. The Aussie is likely to have a short term bounce before resuming another leg down.

Industry News

AWTA Key Test Data Summary for April 2017

The monthly comparisons of wool tested for April 2017 compared with the same period last season show that 7.5% less bales and 7.8% less weight went through the AWTA.

The progressive comparisons for wool tested this season for July 2016 to April 2017 compared with the same period last season show a total of 3.0% more bales and 3.4% more weight.

AWTA Ltd has tested 306.5 mkg (million kilograms) this season compared with 296.3 mkg for the equivalent period last season.

Southern Aurora Wool forwards report

Another positive week on the forward markets. Modest trading in the prompt months with most grower interest centred around the spring and early summer. Stimulated by the strong spot market, which saw new highs across most merino types, Spring hedge levels broke new ground. 19.0 traded through 1800 cents and 21.0 to 1430 cents out to October. The strong spot also drew out buying interest on the finer microns into 2018. Growers were able to cover August 2018 19.0 at 1650. Although this represents a significant discount to spot it is important to note that it is higher than any daily index price for 19.0 micron for the August to December period.

Interest in options continued this week with growers looking to manage the volatility by locking in guaranteed minimum prices. High volatility meant that growers needed to look at lower strike prices to keep premiums in the 30 to 40 cent range.