Although this week’s Australian wool auction sales produced little in the way of price variance, it was perhaps the most impressive performing sale of the season thus far. Many factors all appeared to be conspiring against the potential good fortune of the wool prices. Publicized larger volumes, adverse foreign exchange rates, the relative low quality of a large portion of the selection and the ever present influences of the global economy were the main pre-sale concerns. 

What resulted was quite the opposite. Most type sectors held ground strongly against the negativity and the largest segment of the market, the Merino fleece, gained upwards of 40ac dependent on the quality of the individual lot. Cardings were the sole category where prices drifted downward. To say buyer competition was strong would be understating the tone of the market as almost all operators showed some willingness. 

The AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) hauled itself over the 1500ac barrier to gain 11ac or 0.7% to complete the week at 1503ac clean/kg. A larger gain on the USD (US dollar) EMI was registered as the Australian dollar (AUD) grew in value by 0.6% against the USD. The USD EMI appreciated by 1.4% or 14usc to 1034usc clean/kg, completely eliminating the loss of last weeks sales. 

The issue of the large volume of 48,500 bales coming onto the market and maybe causing a negative reaction failed to materialize as published just the Friday before. Over the weekend, that quantity had diminished substantially by 12% or 6,000 bales. The offered quantity ended up being a far more manageable 42,500 bales and combined with some hidden prompt demand that appeared, the market remained relatively unscathed and in places improved.

The purchasing activity this week was dominated by the big players of each segment. The locally based traders to China led the buying lists on the Merino descriptions, with solid support from the Chinese top makers. The world’s largest top maker dominated the crossbred sector whilst the largest global carbo processor was atop the carding and oddment types. 

Merino fleece types gained 15 to 40ac. Some 20ac gains were made on the better skirtings, but anything slightly off was weaker by the close. Crossbreds were quoted a general 20ac higher, but within that some poorly prepared (or not prepared) clips were heading cheaper throughout as buyers punished those clips not classed to any sort of standard. Cardings were the only sector to face some depreciation and values dropped 20ac as a guide.

The passed in rate for the week was at a touch over 10% with grower owners of Merino fleece still the largest user of this tool. Western Australian growers passed in over20% of their fleece whilst understandably the drought affected growing zones of NSW saw a rate half of that.  

Export figures from the Australian Bureau of Statistics for the season to date as at the end of October 2019 show China remaining dominant buyer of our wool at 75.8% of our clip. Italy is running second with 6.8% of our wool export with India third with 5.5%. The Czech republic, South Korea and Egypt are next with 3.2%, 2.1% and 1.7% respectively. AWEX reported also that this week saw the value of wool sold at auction tick over the 1 billion dollar mark which is somewhat concerning as that value was seen almost two months earlier last season.  

Next week has a sales roster showing 39,430 bales up for sale. This will be the last sale week prior to a three week recess for the Christmas and New Year period. 

Forward Market Commentary - Southern Aurora

By:Mike Avery

For the second week in a row there were no trades on the forward market. The spot auction was firm to a little dearer but grower offering into the new season was sparing at best. Volumes through the platform have fallen away over the last four months. The causes are multi-faceted and have presented growers and exporters with a range of challenges.

Volatility began to rise in April but really hastened from August peaking at almost 50% in October. The steadier decline in prices throughout November has seen volatility fall to under 20% but fatigue continues to dog the participants. Volatility at these levels have not been seen since 2002. 

If we look at the historical trading into the first quarter of the last four years we can possibly draw some insights into the root cause of the reduction in offering by growers. In 2016 growers were comfortable hedging at 1400 as this was flat to cash, 140 cents above the average price for the previous five years and the 90th percentile of prices for the same period. As prices moved up growers were accepting of a discount to cash as hedging levels both strong on a percentile basis and outright price. This was consistent throughout 2017, 2018 and the first half of 2019.

The rapid fall and rollercoaster ride of Spring took confidence out off the whole pipeline. Growers have been confronted with adverse environmental conditions and the feeling of missed hedging opportunities. Similar problems dog the pipeline with high prices stocks, delayed take up and contract renegotiations chocking the smooth flow of trade. 

Hopefully the steadying of the auction market into the break will lead to renewed activity on the forward markets. Growers, Exporters and Processors would all benefit from a more stable trading environment. This can only come about better forward market signals driven by participation along the pipeline. 

AUD Commentary - Southern Aurora

By:Garry Booth

The Australian Dollar (AUD) pushed higher this week lifting off the early low off .6799 and rallying to a Friday high of .6914 on hopes that the new China/U.S Tariffs due to be introduced by the U.S on December the 15th would not proceed, and instead work would continue on the “phase one” reductions. Those hopes were tempered when the White House economic adviser Larry Kudlow said any trade deal might have to wait until after the U.S. presidential election in November 2020. 

The AUD also lifted as the U.S Dollar fell back on Thursday when the U.S. Federal Reserve left interest rates unchanged and Fed Chairman Jerome Powell said rates could likely be on hold through 2020. Markets are also waiting on today’s British election results and for the future of Brexit. In Australia yesterday’s release of the Westpac-Melbourne Institute Index of Consumer Sentiment confirmed the sharp decline in consumer spending.

Technically the Australian Dollar has broken up through several key resistance levels this week, suggesting a target of the .6930 resistance then possibly .7040. A break above could trigger a rally to .7400. However, in the big picture, the AUD remains near the lows of a major downtrend, forming a wide sideways trading base. The question now is whether the lows are now in place, or is this current rally simply an extended counter-trend before the next fall ? A break of key support at .6800 would see a push to new lows. We feel the AUD will push higher in the short term before resuming the major downtrend.