All signals led to a dearer market this week at Australian wool auctions, and on the surface those expectations were largely met, but with some overriding caveats. Some extravagant gains were made on local markets, particularly within the comeback and crossbred sectors (24 to 32 micron) which is a break away from season-long trends. Indicative of this was the 25 micron price guide lifting by an extraordinary 149ac. Within the Merino sector though, a substantially weaker AUD (Australian dollar) masked some weakness of demand for the current deteriorating quality of wool on offer due to adverse seasonal conditions across the nation.

In another historic week, the AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) set new all time records for both the daily high EMI of 1847ac and a weekending record high of 1846ac per clean kg. This represents a 21ac increase for the week. To put these price returns in perspective, this is 23% or 345ac higher than at the same sale week of last year. Significantly this has occurred when we have had over 50,000 more bales sold through auction than at the same period last year.

2017/18 Week 43 EMI: 1846ac
2016/17 Week 43 EMI: 1501ac
2015/16 Week 43 EMI: 1217ac
2014/15 Week 43 EMI: 1153ac

The AUD v USD forex (foreign exchange) took a savage reversal this week, with a week-on-week depreciation of 3% from .7804 down to .7574. Good news for those USD users overseas and usually a stimulus for good advances locally, but this was not the case as prices moved to margins of just one third of that currency advantage. The EMI when expressed in USD (US Dollars) closed out the selling week 26usc lower at 1398usc clean kg. Most of the USD losses were due to stagnant prices of a large portion of the Merino sector. This USD EMI though is out performing the AUD prices and where we sit now is 24.5% higher than last year in US dollar terms.

2017/18 Week 43 EMI: 1398usc
2016/17 Week 43 EMI: 1124usc
2015/16 Week 43 EMI: 951usc
2014/15 Week 43 EMI: 893usc

In the Merino segment of the auction offering, the general lowering of recent wool quality is increasingly causing many price anomalies. Price discovery is now wildly erratic with yield, staple length and nkt (strength) becoming growing factors in price determination, on top of the season long factors of fibre diameter, poBm (position of break Middle) and cvh%(co-efficient of variation hauteur), making for more complicated batch finalizations for exporters. As such, some very large variation in sale results for wools of similar micron and vm (vegetable matter) are now commonplace. The large majority of Merino price indicators of 16 to 21 micron were largely unchanged for the week but within those variations of plus or minus 40ac were individually changed dependent on quality.

Comeback and Crossbred wools (24 to 32 micron) enjoyed the best gains of all wool types and appreciated by a general 70ac. Competition was intense throughout. Cardings remained unchanged.

Next week sees another 43,000 bales scheduled to sell. Strong, but irregular interest due to quality is expected to continue.

Wool forwards report - SA Markets

Another week of high volatility in both the spot auction and the forwards. The rise of Tuesday, fuelled by a lower Aussie Dollar, quickly turned Thursday. The strong bidding in the forwards all but disappeared as off shore interest failed to materialise as the week progressed. The need to keep machinery running is always balanced by the ability to pass the raw material price along the pipeline. This balancing act plays out by demand shifting between fibres, origins and microns. This is probably best illustrated by the basis changes over the last few months. To reduce the impact of the rise in prices we have seen the difference between 19 and 21.0 micron change from 350 cents to 130 cents since the Christmas recess. Similar shifts have been seen in the Crossbreds with 28.0 microns outperforming the finer microns as the price pressures impact merino demand.

The current bull run in prices differs from previous peaks as it has continued relatively unabated for 24 months. This could indicate that the impact on demand reduction could be less than previous dramatic rises that have led to just as dramatic falls.

The rise has accelerated over the last 8 months particularly in the 21.0 micron.

The forward trade levels early in the week 19.0 1960 and 21.0 1800/1855 reflect the difficulty from both buyer and seller to judge fair value while minimising the risk to their respective businesses.

AUD Commentary - SA Markets

The Australian Dollar traded lower each day this week, falling from Monday’s high of .7684, to be trading today, Friday at .7546, well down from last week’s high of .7812. The fall of six consecutive sessions now equals the longest losing streak since May 2015. The AUD is 7% lower than the January high of .8138, and is trading at its lowest since mid-December.

Yesterday Australia’s import prices data surprised with prices rising faster-than-expected at 2.1 percent, this was mostly due to higher petroleum prices. Overnight Global Oil prices rose again, with Brent Crude closing just below $US75 a barrel.

The Aussie dollar is under pressure from a rising USD, as U.S Bond yields lift, and the markets bets the Fed will hike rates in June, in contrast to the European Central Bank (ECB) which is far more cautious, The release this week of Australia CPI data surprised a little with a rise of 0.52% for the March quarter, hitting the annual CPI rise to 1.98%, a two-year high, and currently rising faster than the RBA’s expected 1.75%.

Technically the AUD still remains within a very broad sideways trading pattern, however within that, the Aussie dollar is also trading within a down channel, and the bias remains for a lower move.