Australian wool prices were generally in retreat this week at auctions. The Merino sector was most affected as the market drifted daily and failed to find a solid base where buyers were comfortable to support in strength. Not all of the wool market was gloomy as some very positive results were recorded at the finer end of the comeback/crossbred offering. The AWEX EMI (Australian Wool Exchange- Eastern Market Indicator) lost 52ac and settled at 1778ac/clean kg.

In US dollar (USD) terms, the EMI was 23usc lower at 1392usc/clean kg, a figure much less affected than the AUD EMI due to the strengthening of the foreign exchange (forex) rate. The AUD v USD was 1.3% higher on a week to week comparison.

Whilst the AUD losses were of some significance, the market held on reasonably well in USD terms. The way the market for Merino fleece behaved is normally indicative of a dormant underlying strength of demand, lying in wait for the establishment of a confidence level or peg in the market. Basically, it was the inferior measurements of sale lots that was responsible for most of the downturn. The better style and strength wools and those lots exhibiting the best test results held on far better, albeit a few cents lower and in limited supply.

In the Merino segment, it is somewhat significant that the 6-month and to a lesser extent the 8-month interval shorn clips are now attracting discounts as the market sells to a weaker tone and more growers have gone to this harvest method. Generally, it appears that a minimum of around 70mm greasy on the test data is needed as a minimum safety point to ensure giving Merino wool the best chance of obtaining full market price. Wool of worsted length remains optimal.

There was only a small selection available of super fine and ultra fine (finer than 18 micron) Merino fleece this week and given the forex rate going against the AUD price, the published falls of just 25ac is not even to the magnitude of the rate adjustment. In fact the few bales on offer of the better types held on and even managed to put a few cents on top of the established values. Of most interest to the trade were the wools finer than 16.5 micron, but there was not enough volume to extract any reliable trend information.

The fine and medium Merino fleece types (18 to 22 micron) was the market sector where most of the losses for the week occurred. Variable amounts resulted between centres but a general 50 to 60ac was eliminated from most buyers quotations. The higher values extracted in the previous week at the Melbourne centre completely reversed this week, and that centre became the best value for buyers. The larger quantity on offer in Melbourne exacerbated the falls as the exporters funds became limited and buyers became more selective in their purchasing.

Merino skirtings and cardings were consistently weaker throughout selling. Skirtings fell to similar amounts as their fleece counterparts whilst cardings fell 25 to 30ac. The finer (less than 28 micron) crossbred wools were the best performing of all wool types and 20ac was gained. The broader (29 micron plus) wools sold well and to a largely firm unchanged selling pattern.

Around 44,000 bales are rostered for auction next week. A similar test of demand and of buyer’s financial abilities as witnessed this week is expected to be the compelling factors determining the market direction once again.

Wool forwards report - SA Markets

The auction market continued to realign franking buyers concerns of last week. Trades were thin on the forwards but at levels indicated last week. Offshore demand continues but processors are looking for further relief from the historically high levels. Forward pricing continues discounted but still in the 85 to 90 percentile band for the last two years.

September 21.0mic traded this week at 1640. Although significant discount to cash it still represents almost 100 cents above the spring of last year which was at that time a record level.

We expect the current volatility to continue as the market reacts to funding squeezes, ongoing supply concerns and intermittent demand. We anticipate forward hedge opportunities to present themselves as the market looks to find a level.

AWTA Key Test Data

Key Test Data Summary for February 2018

The monthly comparisons of total weight for February 2018 shows that 4.1% less wool was tested compared with the same period last season.

The progressive comparison of total weight for July 2017 to February 2018 compared with the same period last season shows an increase of 2.1% so far this season.

AWTA Ltd has tested 245.8 mkg (million kilograms) this season compared with 240.8 mkg for the same period last season.

AUD Commentary - SA Markets

It was highly volatile week for global currencies, with the USD the Central player, causing the Aussie to be whipsawed. The Aussie started the week on Monday's low of .7726, before rallying to a midweek high of .7840 before dropping sharply on Friday to .7775. The USD rallied on data confirming economic growth, and the certainty of at least three central bank rate rises ahead this year, as well President Trumps tough stance helped lift the USD further.

In Australia the mid-week release of trade figures stunned most analysts who were expecting a surplus of A$200 million but tjis was easily smashed by a merchandise trade surplus of A$1.055 billion for January. Despite the trade surplus, the AUD was under pressure from quite a large slide in key commodity prices, especially in Iron Ore, Coal and Energy.

Technically while the Aussie Dollar has been volatile, it is still contained within a broad trading range. Key Chart support is found at .7715, then at .7645, while overhead resistance is still solid at .8010 then at .8155.