After appearing to break trend last week with prices rising in a rela-tively large offering, hopes of a more positive market proved un-founded this week as Australian wool auctions produced negative results. While all the gains of the previous few weeks were not en-tirely eliminated, they were being steadily diminished throughout selling. A slowing of prompt demand once again was the primary concern for exporters. The holding of any significant volume of wool remains high risk for buyers as grower stocks are higher than previ-ous seasons.  

A very cautious approach to buying was taken by almost all purchas-ers from the commencement of selling this week. In juxtaposition to others, one leading buying house was keen to cover on the first day as prices went to their favour, but their appetite lightened off on the second day, producing further falls which allowed others into the market. Not surprisingly, as more buyers participated, the market recovered, and to such an extent that the Western Australian mar-ket in Fremantle outperformed their Eastern counterparts. Wool values in the West closed at levels 15 to 30ac above that of Mel-bourne and Sydney selling centres.   

Perhaps not truly indicative of the whole Australian market, the Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) fell 39ac or 2.4% to 1555ac clean/kg. The USD EMI was hit harder as the appreciating US dollar against the AUD helped push that indica-tor down 3.3% or 36usc to close at 1068usc clean/kg. The Western Australian market is perhaps a better barometer this week, as their indicator fell just 25ac or 1.5% with more than half of that drop be-ing attributed to the foreign exchange (forex) rate changes.  

In what has become the status quo of the current market, as prices fell, the pass-in rates increased exponentially. Seller resistance of this nature has not been seen for quite some time but a cursory look would see that strategy as a positive for the health of the market. The strength of competition was just not there this week to justify an unchanged market price and growers selling had a firm price set and clearly were not willing to compromise. In most cases they were unwilling to negotiate a lower return post auction and buyers had to advance to the reserve or leave. Wool growers are more acutely aware of the current (and forecast) supply of raw wool than most, so deciding not to sell at lower rates could be a good lead for users? 

The latest figures reveal that 406,875 bales have been sold through auction so far this season. At the same point last season 2018/19, 521,939 bales or around 22% more volume had been moved into the supply chain. The 2017/18 season saw 646,907 bales having being sold by week 19 which is a cumulative 37.1% higher volume in just the three year period.  There are just six weeks of selling left until the Christmas recess, and please note that there is a “week 25” to close this half of the selling season. Sales will therefore resume in the New Year selling as “Week 29”.  

Next week sees just short of 38,500 bales being offered to the trade. The market direction will be decided by the balance of the relatively large volume for sale versus a strong Fremantle finish to this week.

Forwards Commentary—Southern Aurora (SA) Markets

Predicting the direction of the market let alone the extent of the ral-lies and retracements is becoming a fool’s errand. The season opened will a fall in auction prices of 30 percent during the month of August. September rallied to recovery almost half of the fall. Since then we barely go a week without a change in direction. 

The late October rally started to stall last week and the confidence that saw 19.0 micron trade to 1855 for the New Year quickly faded as the spot auction lost momentum and finished the week cheaper. Sentiment however was reasonable with exporters seeing a stabilis-ing, albeit slightly stronger, AUD and better rhetoric from the USA/China talks as market positives. Bidding on the forwards was steady to start with trading confided to the early new year. 19.0u traded at 1790, 21.0u 1728 and 28.0u 930. The spot auction disappointed with offshore demand not materialising. All three micron price guides 

(MPGs) that traded this week finished below their forward traded levels. 19.0 micron closed spot at 1782, 21.0u at 1720 and 28.0u 915.  

The volatile and erratic nature of both the forwards and the spot auction highlights the importance of developing a risk strategy that incorporates setting price targets. These should be based on margin management around cost of production estimates with an eye to historical price levels and current supply and demand balance. 

Valuing certainty over the fear of lost opportunity should be foremost in the current climate. To put price movements this season into per-spective the average return on a bale of 21.0-micron fleece wool has varied from a high of $2500 to $1750. Cost of production variations in the current drought puts more emphasis on trying to achieve above the midpoint of this range ($2125 per bale). In cents clean per kilo this is around 1700 for the 21.0 MPG. From an historic viewpoint this is the 82nd percentile for prices over the last decade and the 67th percentile for the last five years.

AUD Commentary—Southern Aurora (SA) Markets

The big news in Global Markets came overnight that both China and the U.S had now agreed to simultaneously cancel a raft of existing tariffs and a signing of the Trade Agreement in coming weeks. This news saw U.S Equity Markets rally to new record highs.  

The USD rallied on the news and the U.S 10-year government bonds lifted by 0.15 percentage points to 1.96 per cent, its biggest jump since November 2016. The AUD had a volatile week. Monday the AUD touched a high of .6928  before mid week to .6860 then rallying Thursday and then easing on Friday to .6896 today on the U.S Trade news.  

On Tuesday the RBA left Australia’s Official Cash Rate at 0.75%. 

Technically the AUD is consolidating in a sideways pattern, building momentum for the next move. Some analysts suggest the Aussie Dollar lows are in place, however the Charts suggest to us that further lows are ahead. Overhead resistance is found at .6934 then .7090, support is at .6802 then .6710.  

REVIEW OF PERFORMANCE IMPLEMENTATION PORTAL

https://rop.wool.com/index.html 

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 provid-ed 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.