Australian wool auction sales exhibited some better signals this week as prices began to stabilize somewhat. Price in AUD locally continued to fall away a few points, but in all three major foreign currencies used in wool trading, prices finished the week on an unchanged week on week market general indicator basis.

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) closed the week at 1854ac clean/kg, which is 1.07% or 20ac lower. In US Dollar (USD) terms the market was far more stable and just a 4usc or 0.33% drop to 1322usc clean/kg was recorded. This is significant given wool is generally traded in US dollar terms, thus giving a truer indication of the movement of the market. Interesting to note though that the forex rate was 0.75% higher for the week so in effect you could call it a slightly stronger market and similar numbers were seen in the Euro and Chinese Yuan indicators.

Demand from the outset was stronger, and the tone in the sale rooms was significantly better than what it has been the past few weeks. The one caveat on that statement still being seen is the relatively high percentage of the offering being super fine in micron (finer than 18.5 micron), but not reaching European standards. Whilst the price has lowered more than most other market segments, these wools are sporadic in demand only. Buyer interest is increasing though as the price lowers closer and closer to the 19.5 and 21 mic type area. With the price spread shortening to just near 300ac from 17.5 to 21.0 micron, overseas manufacturers must surely be eyeing off some of the finer qualities as being of comparatively good to better value than their broader counterparts.

The Merino fleece and skirting market was underlyingly stronger than what the auction figures are revealing, particularly when looked at in USD and other currencies. The auction price was being far more controlled but a general 25ac lower price was offered across all microns. Crossbred fleece and skirtings were also better sought and returns were generally unchanged, but it was once again the carding market that struggled to find a level and 40 to 60ac was lost again.

From the supply side, the latest AWTA figures are shown below. Away from the tested numbers, a combination of high passed in rates and a drop in supply has seen a staggering year on year de-crease in bales sold through auction of 107,577 bales in just the first third of the season. By extrapolating those figures against the usual export destination figures, that would mean 81,758 bales less have moved into China than last year at the same time. Logic would command that somewhere there must be a drastic under-use of machinery, as stocks of raw material had long ago been depleted.

Next week sees over 35,600 bales being offered to the trade. The three week forecast is significant to keep in mind as there is currently just 110,000 bales rostered or 22.2% less that the 141,450 bales offered in the same three week period last season. There are six sale weeks remaining to the Christmas recess.

AWTA Key Test Data (End October 2018)

• The monthly comparisons of total weight for October 2018 com-pared with the same period last season show that there was 5.9% less wool tested this October than last year.
• The progressive comparison of total weight for July 2018 to October 2018 compared with the same period last season revealed a 9.7% reduction in wool tested year on year.
• AWTA Ltd has tested 107.2 mkg (million kilograms) this season compared with 118.8 mkg for the equivalent period last season.

Wool forwards report - SA (Southern Aurora) Markets

The week began with futures bid steadily on the back of market sentiment that a rally off the lows created over the last three weeks would follow. Sellers failed to capitalise with only 10t traded into next autumn. The spot auction stabilised Wednesday but with little follow through from off shore continued its downward slide. Processors continued to hold back buying with reduced confidence that consumers will be willing to absorb these price levels into the future.

Uncertainty is the key factor driving the market down overriding the tight supply. Passed in rates continued to rise with 20% of the fleece passed in. Interestingly this time last year with prices 300 to 500 cents below current levels only 1.5% was passed.

Trying to predict the market with so many unknowns is fraught with danger. A forward strategy should contain elements that delivery a degree of price certainty and enable a grower to be a price maker for a portion of their production and not always a price taker. Better pricing points along the forward curve with resultant improved liquidity will enable the risk to be better distributed along the wool pipeline. The end result would be lower volatility, better market signals and the potential of improved growth of other risk tools such as guaranteed minimum price contracts (put options).

Trading levels are projected to be a bit lower next week but still above the 2000 cent level for 21.0 for the most part of next year.