Australian wool auctions returned this week and some formidable gains were made from the outset of selling. Initial concerns re the very large quantity on offer proved unfounded as several buyers attacked the catalogues from the opening lot of selling. Three digit gains in values of mainly the Merino fleece sector were commonplace by the first hour. 

The three week break had obviously created some pent up demand, but from all reports, the manufacturing situation in China particularly has recorded better than expected figures in the last quarter of 2019. Confidence appears to be on the improve and as the global economy swings further to the resolution of issues such as Brexit and the USA v China trade imbalance dispute this should only improve.

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) improved starkly this week to 1609ac clean/kg. This represents a 3.3% or a 51ac gain from the pre-Christmas closing basis. When the EMI is expressed in US dollars(USD) the gains are even more impressive. The USD EMI moved up 4.2% or 45usc to a closing basis of 1111usc clean/kg for the week.

Of most attraction to wool buyers this week was predominantly the Merino fleece and skirtings segments of the selection. Wild fluctuations occurred throughout the week, but price guides across the Merino sectors posted 30 to 90ac rises. Prior to the pull back on Thursday, these gains were all mostly well over the 100ac mark. Crossbreds disappointed somewhat after commencing with solid gains, but by the finish had recorded small retractions of 20ac or so. The carding market was consistently strong each day and by the close of selling, around 50ac gains had been extracted from the buyers pockets. 

As is prone to happen at times in the free market situation that wool trading exists in, the weeks activity was overshadowed by erratic price movements. In reality, such fluctuations do not help stability of trade at any level of the pipeline and in fact can be at times more towards the detrimental. Variations of around 100ac/kg in returned values were recorded this week and entirely dependent on the timing of the sale, not a reflection of true market forces but more so of human issues. 

Somewhat surprising on the surface was the pass in rates hitting over 10%, despite the positive gains. When looked at closely though, this figure was some contribution from the crossbreds which failed to fire, but mainly from the Merino sector in Western Australia which failed to reach anywhere near the highs of the Eastern markets of Sydney and Melbourne and were subsequently passed in.

Next week sees a massive offering of almost 60,000 bales scheduled to go before the trade. 

AWTA Key test Data as at end December 2019

The monthly comparisons of the total weight of wool tested for December 2019 compared with the same period last season show that there was 16.8% more wool tested.

The progressive comparison of the total weight of wool tested for July 2019 to December 2019 compared with the same period last season show that there has been 5.1% less wool tested. 

AWTA Ltd has tested 153.1 mkg (million kilograms) this season compared with  161.3 mkg for the equivalent period last season.

Forwards commentary Southern Aurora

By: Mike Avery

Another crazy week on the spot auction to open the year. Exporters, battle weary from the previous 12 months that saw historically high volatility, witness a 100 cent rise in most merino types on Tuesday. Great news for the few lucky growers but destabilizing for the supply chain. Prices wavered Wednesday and gave up all the gains Thursday to close at mostly at pre Christmas levels with the exception of fine wools that held some of the gained ground.

The forward markets again traded on light volume with sellers tending to withdraw looking for higher prices on the back of Tuesday’s rise. Light volume traded in the nearby months with 21.0 micron contracted at 1820 in January and February out to June at 1800 with a few growers taking advantage of the market reaction.

Difficult to gauge what is in stall for next week with the indent buyers holding sway in the spot market and grower levels sparse in the forward months.

Volatility is making ascertaining fair value difficult for everyone in the supply chain. It is both the cause and effect. The lack of forward market participation and more reliance on ident/spot buying leads to more volatility, poor market signals and lower liquidity in the index products. This is borne out by the EMI data for the last decade. In the first eight years (2010 to 2017) the EMI moved greater than 50 cents on only 6 occasions. Since 2018 it has suffered that degree of movement 13 times.

AUD Commentary Southern Aurora

By: Garry Booth

The Australian Dollar is trading today (Friday) at .6898 after spending most of the week trading in a fairly narrow range, and back down from last weeks rally to .7032.  The AUD is now well off the lows of October last year when it was trading around .6670, however the rally has been halted by recent poor economic data with the majority of market economists suggesting the Reserve Bank of Australia’s will cut rates at its February 4 meeting  .

 In Washington on Wednesday the U.S and China signed phase one of their “Tariff Trade Deal” where China has agreed to buy nearly $US200 Billion of U.S products, including $US50 Billion of Agricultural Commodities. On Thursday, the U.S, Canada & Mexico signed a revamp of the 26 year old Free Trade Agreement. Global Markets are bullish and following the record run of U.S Equities, with Australia’s ASX 200 Index passing through 7,000 for the first time on Thursday, and the Dow Jones hitting a new overnight record high of 29,297.64 points. 

U.S Corporate profits also continue to rise with Morgan Stanley overnight announcing profits well above expectations.US Retail Sales data released overnight were also stronger than expected showing sales expanding 0.7% in December over expectations of 0.5%. The U.S Dollar rose on this good news. In Commodities Brent Crude rose to $US64.78 Barrel and Iron Ore to $US96.36 tonne. 

Overnight the ECB (European Central Bank) released minutes showing its was optimistic for stronger European growth, and also saying it would continue its Quantitative Easing policy. T

Technically the strong rally of the Aussie Dollar that started in December has stopped for now, as the Aussie corrects lower.  There is strong resistance at .6940 and .7080 and good support at .6880. It is likely the Aussie will attempt another rally, and it would need to break through .7080 to clear resistance, and that a rally could extend to .7400. For the moment we feel the that is unlikely the AUD will ease back to .6700.