Australian wool auction markets did very little this week as far as price movement are concerned. Just a few minor adjustments in price levels were recorded and mainly downward, notwithstanding the fact that a lot of wool on offer is coming off record highs. Not all selling centres were effected adversely as the Western Australian centre at Fremantle demonstrated, as that market surged forward above and beyond the Eastern state levels, which is a rare circumstance. The AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) drifted slightly throughout selling and backed off 10ac to conclude the selling week at 1836ac per clean kg.

In what is becoming a developing pattern, the local market drifted backwards in concert with a strengthening USD (US dollar), defying traditional logical thinking, as the stronger USD should theoretically act as a stimulant and push AUD prices upward. Conversely we have also seen the reverse occurring, giving rise to the evidence of the underlying strength of demand at present for the fibre as the leading factor in wool price determination. The EMI when expressed in USD (US Dollars) was harder hit and dropped 17usc to close at 1381usc clean kg.

The deteriorating quality of wool on offer due to adverse seasonal conditions is growing in significance as larger volumes of harder to place wools are impacting more heavily on pricing. In Sydney this week, large numbers of low yielding and heavier vm (vegetable matter) Merino fleece wools forced some negativity on that auction centre and general losses of 25 to 35ac were subsequently recorded on the micron price guides. The Melbourne centre behaved more rationally and prices were generally maintained around the established levels, albeit with some severe averaging within micron brackets being undertaken. Fremantle provided the strongest of returns as that centre forged ahead across all categories by 15 to 20ac clean/kg by the close of selling.

The skirting and carding markets were rather mundane this week, and very little change to their established values were made. Following successive weeks of strong gains, the comeback and Crossbred wools (24 to 32 micron) stalled this week and strtaed to back off in a lot of areas. The few wools of 24 to 28 micron were still well supported and sold fully firm, anything broader (28 mic plus) was out of favour and fell away by a general 30ac clean/kg. Cardings remained unchanged.

Next week sees volumes fall away to just 38,000 bales and with vastly differing quality of wools expected to be on offer, the irregular but strong interest is again likely to be continued.

AWTA Key Test Data - April 2018

• The monthly comparison of total weight for April 2018 compared with the same period last season is 11.7% more due mainly to more working days in April 2018 than the same period last year due to Easter.
• The progressive comparison of total weight for July 2017 to April 2018 compared with the same period last season is 0.9% more.
• AWTA Ltd has tested 309.4 mkg (million kilograms) this season compared with 306.5 mkg for the equivalent period last season.

Wool forwards report - SA Markets

Whilst all micron groups posted losses for the week they were minor compared to the volatility of the previous months. Crossbreds fell for the first time in 3 months as reached levels closer to their historical relationship to the merinos.

The forward markets held their ground with modest volumes going through mainly focused on the spring. August 21.0 micron traded at 1840 to 1855 and September 1820 to 1840. These levels are 15 to 20% above the last years auction averages. August 2017 21 MPG average was 1600 and September 1550. October traded at 1740 12% above the 2017 level.

Demand forward on the 19.0 micron is a little more cautious at the current outright levels. Bidding in August was around 1950 and September 1930. This represents an increase of around 5% on last Augusts’ average of 1860. September the increase is a little better with 1930 being 7% about the AWEX 19.0 MPG average of 1800. Crossbreds traded 28.0 at 840 for November a rise of 12% on their November average for 2017.

The challenge remains in getting meaningful volumes from the selling side to maintain exporter and processor interest in delivering fair value pricing for growers enabling them to adequately manage the volatility and risk they constantly face. The 37.5t traded this week represents less than 1 per cent of the volume presented for auction.

AUD Commentary - SA Markets

It was a volatile week for the AUD falling on Tuesday to a fresh one year low of .7474, against a rising USD, before lifting today, Friday to .7530, and is well off January’s high of .8136. The AUD/USD has now lost 8% since January, while the US Dollar Index (which measures the USD against a basket of major currencies) has jumped to a four-month high. Westpac’s FX team thinks there’s further downside to come. “The Aussie remains pricey and “yield differentials along the curve are moving steadily in the US Dollar’s favour and Iron Ore prices have dropped more than 20% since March. “We look for 0.7400 by the end of December.”

This week Australia’s Foreign Trade Figures surprised with a strong March surplus of $1.527 Billion, and was the third straight month in excess of $1 billion. Exports for the month hit a record high of $34.84 billion, while the rise in imports was entirely driven by a $416 million surge in fuel imports. Agricultural Export income surged, lead by Wheat, while income from Education and Tourism was strong mainly from Asian demand. The surplus was also the largest since May 2017.

Technically the Aussie still remains with a very large sideways pattern, albeit that it is also trading within a small down-channel. The attempt to break and hold below .7500 failed and the Aussie is likely to see a small rally toward .7580, however the chart pattern remains negative and suggests we will see a re-test of the .7500 support.