Price falls across all types and descriptions were recorded at Australian wool auctions this week, with all selling centres operating. Hardest hit was the superfine Merino (18.5 micron and finer) sector which continues to be negatively impacted by relatively large volumes of low yielding drought effected sale lots and the sparse demand for such wools.

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) reduced 2.20% or 41ac to close the week at 1823ac clean/kg. In US Dollar (USD) terms the EMI was lowered even further by 3.07% or 41usc margin to 1260usc clean/kg, as the AUD v USD foreign exchange (forex) weakened by 0.9% on the week-to-week comparison.

Processors and top makers remain the keenest amongst the buying fraternity with three of the four market sectors topped by these machinery owners. Crossbred buying was largely in the hands of firm offer forward contractors. Once again there was very little interest from the large Chinese indent buyers, but the as prices fell even further on the final day, one of those operators upped their ante and started to pick off some volume at the cheaper levels.

Purchasing activity by dedicated trading companies was certainly evident, but their volumes of trade are being restricted by the generally inferior selection on offer. The offering remains predominantly wools that are hard to place into standard contracts to our two largest manufacturing destinations of China and India. Yield and strength (nkt) test readings are abnormally low due to poor seasonal conditions across half of our growing regions.

Somewhat of a stalemate exists as far as forward contracts support of local wool markets go. Exporters are reticent to sell too much volume forward as this will expose them to high loss risk if the market turns, whilst the overseas buyers are unable to get set for the full amount of quantity they would like to get set for, which would in turn assist in underpinning the market. Quality of the offering going forward plays its part in this scenario as well.

Within the Merino fleece segment, wools of 18.5 micron and finer lost up to 80ac, irrespective of quality. The 19 to 22 micron wools were less impacted upon, but still saw heavy retractions of 40 to 50ac, except the better specification lots which were 30ac cheaper. Merino skirtings sold in similar fashion to their fleece counterparts.Crossbreds and cardings prices slowed in their losses but this week fell by margins reflective of mainly the forex rates and sentiment which roughly equated to 20ac reductions.

Significantly, 21.3% of this week’s offering failed to meet grower’s expectations and was subsequently passed in. Next week reverts to just the two Eastern Australian selling centres in operation. Fremantle will not be holding an auction sale. There will be less than 20,000 bales on offer nationally.

Wool forwards report - SA (Southern Aurora) Markets

The forward market traded down again this week in sympathy with the spot auction. Fine wool prices dropped to year lows with the 19.0 micron dropping to levels of last May. 21.0 microns dropped to the previous season low of November. The market drivers remain weak. The demand destruction bought on by record prices of the last four years has been exacerbated by continued friction between USA and China and anticipated poor global growth.

The sudden price realignment has caught most participants by surprise as tight, drought induced, supply was thought to keep prices in a relatively stable. Forward levels of the last few weeks have indicated a weakening bias into the spring but off higher base levels. Spring 2019 has fallen but not to the degree of the spot market. The physical market has fallen 150acents since early May while Spring forward levels are back 80 to 100acents. 19.0 microns traded between 2025ac and 2060ac in August and September. 21.0 micron traded out to October between 1980ac and 2030ac.

We expect trading next week to again focus on the spring and early summer with exporters looking to get limited cover around the 2000ac level.

AUD Commentary - SA (Southern Aurora) Markets

It was a down week for the Australian Dollar as global tensions saw demand rise for the USD. On Monday the AUD opened on the high at .7008, falling to a low Thursday of .6901 before lifting a little Friday to .6914.

ABS data showed this week Australia’s unemployment stalled at 5.2%. In positive news President Donald Trump said on Thursday that Canada and Mexico are now in a position to complete the new North American free trade deal. Markets are also waiting on the G20 Summit set for the June 28-29 in Osaka, Japan, where its expected President Trump and Chinese President Xi will meet.

Technically the AUD remains range bound at lower levels with solid support seen at .6860 and strong resistance at .7150. A break through of .6860 would see the AUD slide to .6720. The market looks oversold and a rally is likely. However the bigger picture re-mains negative and we expect the market to retest support.

Become an AWI Shareholder

AWI shareholders are able to shape the decision making process of the company via their access to information from the company and their right to vote at the company’s Annual General Meetings. If you are an eligible wool levy payer who is not an AWI shareholder, you are encouraged to apply to become one (which is free) and join the nearly 22,000 woolgrowers who have already chosen to be a shareholder.

If you have paid at least $100 in wool levies in the past three years, you are eligible to apply - simply complete the shareholder application form available at https://www.wool.com/about-awi/shareholder-information/becoming-a-shareholder/ .

Please note: Paying wool levies does not automatically make the levy payer a shareholder of AWI. To become a shareholder, a levy payer must apply.