In a groundbreaking opening Australian wool auction for 2018, the record AWEX EMI (Australian Wool Exchange- Eastern Market Indicator) set at last year’s end, was smashed and an unprecedented price set for the 13th time this season. The Christmas and New year break did nothing to slow down the surging finish of 2017, and resulted in healthy gains recorded for all segments of wool on offer as buyers competed to secure lots after the 3-week recess.

At the closing of sale week 28, the EMI had built 58ac on the last close of sale to finish at 1818ac clean kg, pushing through 1800ac and breaking the previous record of 1760ac. Almost all Merino types charted increases of +40 to +110ac for the week, with Merino cardings also leaping around +65 to +70aus cents. Interestingly, the top 4 buys in Room 1 accounted for over 50% of the market share, with the top buyer purchasing 17.9%. The major Forex (foreign exchange) rate used in wool trading, the USD, closed at 0.7873 which is a gain of 2.7% since the last wool auction. Even with this gain in the Australian Dollar, the demand for wool on offer was too strong and prices continued upward. In USD terms, the Eastern Market Indicator gained 82usc to close at 1431usc clean/Kg, an astounding value increase of 6.08%. The first sale of the year always demands a lot of interest, and with the season’s largest offering of 53, 517 bales to the trade, it was no different for 2018. Melbourne conducted a stand-alone sale on Tuesday which set the tone for the rest of the week as all Merino types rose 10-40ac, while Crossbreds backed off 5-15 ac. By Wednesday, as Sydney and Freemantle opened, competition was well under-way for buyers to gain a piece of the market and impressive gains for all Merino types were recorded, while Crossbreds experienced mixed results. Superfine wool (<18.5mic) jumped up +50-80ac for the day, while fine wool (18.6-20.5 mic) saw paralleled competition and rose +40-60ac. Broader Merino types followed suit gaining another 30-60+ac, while Crossbreds had further mixed results: the finer end gaining 10ac and 30-32 micron fell off 10c.

Thursday would be a tell of the true demand in the sale room and how far buyers were willing to go, as Wednesday would surely have stretched some limits. However, competition remained strong, particularly in Sydney, as buyers pushed almost all wool types up 20-30ac. Melbourne appeared to have reached its threshold for some wool types, however overall remained at similar levels to the Wednesday. Fremantle recorded further gains for all wool types on offer. At Thursday’s close, the EMI improved again, up 11ac to close at 1818ac clean/Kg and rose 17cents in USD terms to finish at 1431usc clean/KG.

Auction sales next week in Australia have a similar offering to this week of around 54,000 bales for buyers. The 3-day price rise of this week’s auction indicates that appetites for Australian wool are still there. The growing demand taking place within the consumer market, with limited global stocks to be put through machines leaves many optimistic about immediate prospects of Australian wool.

AUD Commentary - SA Markets

The Australian Dollar rallied this week, hitting a fresh three month high on Thursday of .7895 on the back of a robust Australian retail sales for November and a broad-based USD sell-off. That sell-off was accelerated by a strong Euro rally, which occurred as a result of the release of minutes of the ECB Governing Council showing an upbeat outlook for Europe, with rising GDP and inflation. Data released from Germany showed the economy had expanded at the fastest pace in six years in 2017, as GDP grew 2.2 percent in the fastest growth since 2011 and the eighth year in a row of growth. In Australia, Retail Sales surprised all, with a jump of 1.2 percent for November, triple the 0.4% expected as sales hit A$26.377 billion.

Since our last report a month ago, the Aussie has rallied of the mid-December low of .7500 to hit an overnight high of .7892, and for this week, we have rallied off the Tuesday’s low of .7808, to hit a high today (Friday) of .7903. Currently we are a little lower at .7892. There are a number of factors supporting the Aussie, including the comment yesterday from Chinese Premier Li Keqiang who said the Chinese economy expanded around 6.9 percent in 2017, a situation that was “better than expected,” Also US stocks hit another record high overnight, with the Dow, S&P500 and Nasdaq hitting fresh records. The S&P500 is up by more than 3% in 2018. Spot Iron Ore prices also rallied hitting new five month highs, with the bench-mark closing at $79.08 a tonne, leaving it at the highest level since August 22. Oil prices also marked a fresh three-year high on Thurs-day, buoyed by a pullback in U.S. production and the big U.S “freeze” in the weather, as NYMEX West Texas Crude $63.80 a barrel Brent Crude closed $69.26 a barrel. Prices for both WTI and Brent marked another finish at their highest since early December 2014. The Aussie is also supported by the talk that the RBA could finally join some other global central banks in tightening this year. However, the key to this lies in wages growth and the stubbornly high private consumer debt levels. Also, recent cooling of housing markets also lessen the pressure on RBA to hike, so all in all it will be a volatile few months ahead.

SA Markets wool forwards report

The auction market commenced after the recess unexpectedly strong. The firming AUD had no impact with most merino qualities gaining 3 to 4%. These gains translated into the forward markets. Front months gained 50 to 60 cents with 19.0 microns trading from 2070 to 2135 and 21.0 microns 1705 to 1755. Fine wools came in for support with May 18.0 trading to 2300 (a hedge level of almost 3,000 per bale).

The surge in the auction triggered strong pricing out into the spring with 19.0 micron trading August 1935, September 1910 and October 1900.Forward pricing seemed to steady Thursday as both exporters and processors adjusted to the new pricing levels particularly in USD terms (The EMI rising 81usc or 5.6%).

We expect solid bidding to be maintained next week but risk levels are risking for both the buyer and seller.