This week saw the volume sold at Australian wool auction markets for the current season reach beyond the 1 million bale mark, but unfortunately the real news was the retraction of price levels across most wool types. Merino fleece wools managed to hold on reasonably well, but all other sectors of the market were adversely affected. The AWEX EMI (Australian Wool Exchange- Eastern Market Indicator) registered a 57ac reduction for the week to close at 1744 ac clean/kg. In USD the EMI fared better but still slipped 36usc lower to 1398usc clean kg.

Whilst a retracting market is never good news for woolgrowers, when placed in context, the EMI when expressed in AUD is sitting at levels 23.5% higher than at this time 12 months ago, but more significantly, the demand-indicating USD price for the EMI is a compelling 31.5% higher than at this time last year.

General thoughts from the trade pre-sale were rather negative apart from the Merino fleece sector. More important was the general consensus post-sale that whilst prices eased off 35ac clean/kg on better types across most of the Merino types, the fundamentals within that trade area have not changed. Demand has simply not turned off, but price to match demand is just being allowed to ad-just to more useable levels. In fact, some small gains for wools finer than 18 micron were recorded for the week. Generally good market conditions and solid demand for quality worsted length Merino wools continues and this is particularly so at the finest (less than 18 micron) end of the Merino micron spectrum.

What has changed though is the urgency for purchases has been somewhat alleviated by the past few weeks buying. Overseas users now seem to have a 4 to 6 week buffer of inventory built up so further purchases do not need to be concluded immediately. Local buyers here in Australia are not willing, or indeed have the funds, to take on stock at the perceived “high” levels in anticipation of that fresh business occurring, so they are prepared to let the market drift for the time being to find that sweet price spot that manufacturers seek.

Of most change this week was the drastic reduction across all of the carding sector. Some individual losses were as much as 300ac lower or verging on 18% , but all wools making up the carding segment averaged reductions of around 190ac clean/kg. In reality these wools are coming off enormous record levels so this type of price adjustment was said to be coming, but the downturn surprised all by the magnitude of the losses and the velocity of the movement within just one week of selling. As several buyers of these wools commented that perhaps the “just ripping off the band aid solution” may be the stimulus to get this sector back to tradeable levels whereby carding product at the retail end can be moved to consumers at acceptable levels.

Crossbreds traded 70ac lower in ordinary market sentiment.

Many traders still maintain this downturn in Merino to be a brief respite to the ruling strong price trends. Drought conditions both here and in South Africa continue to be dangerous for upcoming supply numbers, which most buyers are fully aware of. Next week has a touch over 42,000 bales for sale and it will be most interesting to see the grower sellers reaction to the lower market.

AUD Commentary - SA Markets

The Australian Dollar surged higher against the USD overnight, to hit a four month high today, Thursday of .8082, well up on yesterday's low of .7956. The AUD was helped higher by a rebound in Iron Ore prices and especially by Oil rising back above $US65 on Wednesday for the first time in more than three years. The real currency story however was the further plummet in the USD, on the back of remarks by the US Treasury saying a weak USD is no concern to us, if fact it is good for trade” which inspired fresh selling. The US Dollar Index sank on the news, hitting a fresh three-year low. While the Aussie was up against the USD, both Currencies fell against the surging Pound, Euro and Yen on stronger economic news.

The RBA will likely be forced to leave interest rates on hold until at least 2020 given the prospect that inflationary pressures remain subdued. To add some fuel to the fire, in NZ this morning the official CPI figures released stunned, coming in at 0.1% way below the 0.4% ex-pected, and saw the NZD sell off sharply.

Technically the AUD remains trapped within a broad trading pattern, however the break of .8040 indicates a further rally to the .8124 resistance. A break of that solid level suggests a charge to the key Fibonacci level at 0.8451. On the downside, break below .7956 support is needed to indicate that the market has made a short term top.

SA Markets wool forwards report

A challenging week for both the auction market and the forwards. The auction market dropped around 50 cents for the week. The forward market was a little slower to react with some sellers being able to achieve strong levels out to May. 19.0 traded from March to May be-tween 2090 and 2110. The cash indicator closed at 2093. Crossbred growers were hedged February and March at 800/810 well ahead of the 28.0 indicator that finished the week at 736.

This week falls, although significant, can’t be looked at in isolation. Most qualities have just returned to their Christmas closing levels. The exceptions being 21.0 microns that are still 30 above their close and crossbreds (28.0 and 30) which have lost 50 cents. More importantly to remember is that this time last year prices were 350 to 400 cents lower for merino qualities.

Growers hedging into the late autumn and even into the spring will be looking at levels still in the 90th percentile for prices over the last two years. Consideration needs to be placed on the value of certainty against the fear of missed opportunity. Some interest has been shown by growers on options. Current volatility and momentum has pushed the premiums up and the strikes down. Exporters have been unwilling to accept the current risk of capping their upside benefit and leaving the downside exposed at these historically high levels