The pendulum continued to swing once more this week at the Australian wool auction sales and weaker pricing was the result. The gains of last week were eliminated entirely as values decreased a general 15 to 25ac across all of the wools on offer.

The AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) lost 19ac or 1.2% this week to close selling at 1555ac clean/kg. The foreign exchange rate (forex) of the AUD (Australian dollar) against the USD (US dollar) was practically the same week on week so the USD EMI fell an identical 1.2% or 13usc to close at 1057usc clean/kg.

Volatility remains the key ingredient to market behaviour. A stable basis of trade appears to be unlikely in the current environment as fluctuations in price and demand wobble in and out week to week. The movements are becoming somewhat more predictable in direction though as volumes on offer and the Western Australian market close are flagging initial movements for the following week.

A good mix of wool buying interests were active throughout the week, with traders, top makers, indent operators and processors all showing intent to purchase as the price drifted lower. The price retreat should indicate a weak tone but the sale room competition was perhaps some of the more widespread and normal buying patterns we have seen for some weeks. In fact, many sale room operators mentioned “good competition throughout selling” in their post sale commentary.

As per the season-long trend, pass in rates climbed as prices weakened. The intentions of growers and their wool selling brokers to hold their wool, rather than to accept prices of 20 to 30ac below their pre-sale valuations is now pretty well standard operating procedure, particularly in the West.  The national pass in average hit a touch over 16% this week. Of most note was the figure of almost 30% of the Western Australian Merino fleece failing the meet the price expectations of wool grower sellers.

Next week has another large offering of almost 40,00 bales which, if hitting the recent trend according to the volume assessment would see the market struggle. Counteracting this though is the strong finish to selling in Fremantle which has recently flagged a market rise for the following week. Looks like a coin toss to which direction the market sails, but maybe “unchanged” could result which is a term minimally used for the past three to four months.

Australian Wool Forecast

The Australian Wool Production Forecasting Committee’s third forecast of shorn wool production in 2019/20 is 272 mkg greasy. This is a 9.2% decline on 2018/19 that is attributable to lower sheep shorn numbers and lighter average fleece weights due to continuing dry conditions in key wool growing regions.

High adult sheep slaughter rates in 2018/19, which were up 16.0% on 2017/18, reduced the number of sheep available to be shorn during 2019/20. Persistent dry to drought conditions, limited pasture and stock water availability in key wool growing regions combined with strong returns for mutton and lamb continue to reduce the number of sheep on Australian farms”.

The number of sheep shorn in Australia during 2019/20 is forecast to fall by 7.5% to 67.1 million, while average wool cut per head is forecast to fall by 1.7%. In NSW, shorn wool production is forecast to fall 13.7% , Victoria down 4.8%, WA down 4.7%, SA down 10.5%, Tasmania down 6.7% and Queensland down 17.3%.

AWI AGM

Shareholders at the 2019 AWI Annual General Meeting in Sydney have voted to approve the changes to the Constitution in a significant milestone in the company’s commitment to implement in full the recommendations of the Review of Performance – in consultation with woolgrowers.

The endorsement of the changes takes the overall Review of Performance implementation rate to 96 per cent, with 73 out of 82 recommendations (89 per cent) now implemented in full.

AWI shareholders have today elected two new directors to the seven-member AWI board – Dr Michelle Humphries and Mr Noel Henderson. Existing director Mr David Webster was re-elected to the board.

Southern Aurora Wool Forwards report

By Mike Avery.

Another week dominated by uncertainty and reactive to changes in sentiment. The indent order flows into the spot market continues to be erratic and consistent forward sales are not forthcoming. The result was a weaker spot market that continues to look for direction.

The forward bidding remained consistent with the light volume that was done at or around cash. Growers still seem to be reluctant to commit at these levels even with the curve flat out to March 2020. This is understandable with drought and fires to the front of everyone’s mind at present

Exporters were bidding 21.0 at last weeks close (1740) early in the week but fatigued by mid- week under the pressure of lack of demand pull and poor sentiment. A weaker than expected spot market saw some trade selling joining the light grower interest and February and March were executed at 1720 for 21 microns. This level still equates to over $2000 per bale.

The week ahead is likely to see exporters still prepared to take on some stocks at around the 1750 level for 19.0 and 1700 for 21.0. Any move outside these bands will likely come from outside influences.

AUD Commentary Southern Aurora Markets

By Garry Booth

The Australian Dollar’s attempted mid-week rally failed at the high of .6834 as the USD pushed higher and Commodity currencies fell away on concerns that the first part of the U.S/China Tariff Agreement may not be delivered till early next year.

Commodity markets also traded lower on news the U.S. House of Representatives had passed two bills to back protesters in Hong Kong and send a warning to China about human rights, a measure that angered Beijing. Despite that, overnight China still invited reached out to invite U.S. trade negotiators for a new round of face-to-face talks in Beijing.

 In other news the U.S House Democrats said they had ironed out differences with the White House over a trade agreement with Canada and Mexico which will replace the $1 trillion North American Free Trade Agreement, or NAFTA. Also this week, the OECD in it's Quarterly economic outlook projected that the world economy will grow by a decade-low 2.9% this year, and warned of a myriad of risks to this.

Technically the Australian Dollar remains trapped within a broadening sideways trade pattern, and the recent rally to break resistance at .6930 failing. Good support is found at .6740, however a break of that would see the Aussie re-test market lows. We still believe the Australian Dollar will re-test the lows over the coming weeks.