Wool prices of all types and descriptions recorded large gains at the Australian wool auctions this week. Once again we had the normally bearish factor of a strongly appreciating Australian dol-lar (AUD) against the US dollar (USD) as a potential roadblock, but this proved inconsequential as the immediate demand needs took charge of the market direction and forced prices upward. 

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) jumped 49ac or 3.2% to 1594ac clean/kg but larger gains of 4.4% or 47usc on the USD EMI resulted due to foreign exchange rates and saw that indicator close at 1104usc clean/kg, the high-est level that indicator has been since early August. 

The strong lead that the Western Australian market provided on the Thursday of last week proved spot on for the rising market trajectory this week. What wasn’t factored in though was the swiftness with which the market roared upward. The strength of competition between just the top four export trading houses proved enough to force 40 to 60ac gains across all wools on offer from the outset of selling.  

The four percent price gain in one day is indicative of a wool mar-ket on tenterhooks. Auctions are now highly reactionary to im-mediate demand, both to the positive and negative. Buyers, local and overseas, don’t want a heavily exposed open position and execute purchasing promptly and it appears without price limita-tions.  

The extent of the price differentials that arose from the first day’s selling compared to the previous closing values had many of the buying fraternity commenting that once again “gains went too high, too fast: not good for stability of demand”. The past three or four weeks of reasonably stable prices of just +/- 20ac had the industry more comfortable whereby  both sides of the trade could act with reasonable confidence. The halt to gains and pull-back in Fremantle on the final day of selling was the inevitable result as most buyers reverted to price-sensitive purchasing. 

There are probably two major reasons why the market is so jittery. One being and financial results of the immediate past. Clearly the supply of not just Australian wool, but global supply is being severely negatively impacted. This is due mainly to adverse climatic conditions. Secondly, some precarious financial impacts would have been incurred by much of the industry due to the rapid devaluation of the wool price that occurred in August. Cov-ering off risk is paramount due to both those factors. 

Next week sees 36,000 bales being offered to the trade.

Forwards Commentary—Southern Aurora (SA) Markets 

The spot auction market rose strongly Wednesday leading to export-ers buying the available for offers. 19.0 traded at 1855 for late Janu-ary. This was 10 over cash of the close as the market steadied to fin-ish unchanged Thursday. 19.0 traded earlier in the week at 1820 and again on the close Thursday at 1830 as the rally lost steam. 

The current lack of volume on the forwards has been attributed to caution by growers selling into a market dominated by exporters that have access to better intel on the market and are trying to reduce their risk. While both those comments are true the function of a for-ward market is to spread the risk along the pipeline and not have it resting on one sectors shoulder. No one can predict the future even with the best of intel. This is borne out by trade volumes highest in February and May this year that coincided with peaks in the spot market. 

Risk management is about margin management. Exporters are natu-rally about buying at the best possible price. More importantly they are looking at buying at a level either to cover their current sales and reduce their exposure or future sales where they anticipate they can lock in a margin.  

Growers should also be looking to maximise their returns but also with an eye to reducing risk. Having some portion of production locked in still seems a sound tactic. Timing is important with rallies in the spot market usually bring the best opportunities.  

Global market news has generally been more positive but reports this morning out of China have raised doubts on the direction of the USA/China trade negotiations due to President Trumps “impulsive nature.” 

Next week will again be interesting. Hopefully Thursdays pull back into the close that saw Fremantle down 20 cents is just a steadying. The trading levels next week will be reliant on export sales over the weekend.

AUD Commentary—Southern Aurora (SA) Markets 

The Australian Dollar rallied this week lifting off Monday’s low 

of .6810 to a three month high Thursday of .6930 before easing into Friday at .6896. The AUD support came from comments by POTUS that the first phase of a trade pact with China could be signed “ahead of schedule”. In other major news the U.S Federal Reserve cut Inter-est Rates on Wednesday to 1.5%, which saw Wall Street hit a new record high. Technically the AUD rebounded well to .6930 from the lows and chart double bottom of .6670 in what has been a medium term reversal. This could rally could extend to key resistance at .7084.

AWTA KEY TEST DATA as at END OCTOBER 2019

• The monthly comparisons of total weight tested for October 2019 compared with the same period last season is 4.2% less.

• The progressive comparison of total weight tested for July 2019 to October 2019 compared with the same period last season is 10.8% down.

• AWTA Ltd has tested 95.6mkg (million kilograms) this season compared with 107.2mkg for the equivalent period last season.

REVIEW OF PERFORMANCE IMPLEMENTATION PORTAL

https://rop.wool.com

This portal has been developed by AWI to report to woolgrowers on the implementation progress of the recommendations included in the 2015-2018 independent Review of Performance report.  

The information on this portal has been designed to present each of the 82 recommendation items provided by Ernst & Young and provide real time updates on the current progress made by AWI to implement each recommendation item. The comments and status are updated regularly to enable woolgrowers to track AWI’s progress.