Australian wool prices were negatively influenced this week by the decision to cancel sales last week due to a service provider unable to deliver the necessary data. An industry committee consisting of wool selling brokers and buyers/exporters determined the auctions could not be conducted under the normal working arrangement scenario, so postponement was deemed the only option. AWEX reported the volume of 62,000 bales plus was the second largest weekly offering in over a decade.

Almost two weeks’ worth of volume was just too much for the market to cope with in a single week. Growers selling were disadvantaged by prices falling across almost the entire selection. This was disappointing for the affected growers as many influential pundits were publicly expectant of a dearer market before the cancellation last week. The magnitude of the fall was tempered to a large degree by the massive passed in rate of 32% on the final day of selling. This saw the weekly passed-in rate abnormally high at 23.7% given the relatively minor fall in the EMI.

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) dropped 19ac or 1.2% to close the week at 1561ac clean/kg. In USD terms the indicator slid just 2usc to 1034usc clean/kg as the 1% appreciation of the AUD against the USD stymied the fall in that currency. Merino fleece reduced by 20 to 40ac in the Eastern centres but significantly larger falls occurred in the West. Notably in the WA market, the growers resisted taking the lower prices on offer and passed-in 40% of the Merino fleece on offer. Skirtings dropped 50ac and cardings were 20ac lower. Crossbred wools managed to almost hold their values.

A relatively good offering of superfine Merino spinners and best top making types were perhaps the only unscathed sector, but even these were trending easier to buy on the final day. As far as wool type goes, this week could not have seen a more differing quality on display. Merino spinners wools yielding over 80% dry were shown side by side with other wool from drought regions which barely hit 40% dry. These drought affected types were all 50ac lower for the week.

This weeks’ buying was dominated by the large Chinese indents competing strongly against Chinese top-maker and locally based trading exporters. Similar competition was witnessed on the crossbred segment. Traders were dominant in purchasing the available skirtings and processors dominated the carding purchase lists. Buying was heavier than normal for most operators at auction but was spread across numerous companies so finance stress may be avoided for most as volumes fall away the next few weeks and letters of credit flow in.

Next week sees 46,680 bales scheduled for sale. This week saw Sydney and Fremantle clear their respective backlogs caused by last week but Melbourne will need the upcoming week to do so.

AWPFC Bushfire statement

The devastating effect of the recent fires in Australia on many people’s lives, homes, infrastructure, livelihoods and wildlife has been widely reported. 

The Australian Wool Production Forecasting Committee (AWPFC) is aware of trade concerns regarding the impact of the bushfires in eastern and southern Australia on shorn wool production. 

Data provided to the AWPFC by state government authorities1 indicate that the current estimated number of sheep reported lost is approximately 70,000 out of a total Australian population of under 70 million. More than 80% of these losses are reported to have occurred on Kangaroo Island in South Australia. 

Assuming 40% of these sheep would have been shorn between February and June 2020 at an average of 4 kg of greasy wool per head, the AWPFC expects the impact of the fires on shorn wool production to be approximately 112,000 greasy kg. This is around 0.04% of the current AWPFC forecast for the 2019/20 season of 272 Mkg greasy. 

The expected impact on Australian shorn wool production is minor relative to the impact of the drought in key wool producing regions of the country. However, the AWPFC acknowledges the significant impact of these bushfires on individual sheep producers in affected areas, some of whom have lost a substantial proportion of their flock and infrastructure. 

The carryover impact of the bushfires on shorn wool production next season will be considered when the AWPFC meets at the end of April and provides its first forecast for 2020/21. 

AWTA Key Test Data end February 2020

The monthly comparisons of total weight for February 2020 compared with February 2019 show 10.3% less was tested this month.

The progressive comparison of total weight for July 2019 to February 2020 compared with the same period last season show a 5.7% reduction for the 8 months of this season. 

AWTA Ltd has tested 205.8 mkg (million kilograms) this season compared with  218.3.0 mkg for the equivalent period last season.

Forwards Commentary - SA Markets

By Mike Avery

With one black swan event behind us the wool auctions recommenced this week. The forwards traded at a discount of 30 to 40 cents to start the week as opinion was divided on how the spot market would react to carried over quantity from the postponed sales. 19 Micron traded at 1790 and 21micron traded at 1750. Wool had been seeming immune to the pressures of the global economic uncertainty. 

This seemed to be the case again as a solid start to the auction saw the forwards push up near to cash and trade out to May. The market peaked during the afternoon after 20,000 bales changed hands in the Eastern States with 90 percent of the offering sold. With orders filling the prices slipped into the close finishing 15 to 20 cheaper in Fremantle.

Thursday saw a continuation of the slide as the price whipsaw that has dogged the market even before the immergence of the coronavirus refuses to settle. In the 17 auction trading days since Christmas the key 19 and 21 indices have had intra day movements of greater than 30 cents on 6 occasions. 

Direction from here is hard to gauge. Stock and commodity markets remain nervous. From an historical point of view current prices still remain in the high percentiles especially for the medium microns. On a ten year scale 19.0 is at 76% and 21.0 at 83%. From a more near term perspective the five year figures show 19.0 just over the average at 52% but 21.0 holding at 68%. With the spread between 19 and 21 again closing to 40 cents on both spot and forwards a grower hedge strategy around 21.0 looks the logical path at the moment

We expect some reluctance from exporters following Thursdays falls but we may see interest return into the early autumn with follow up off shore demand. Anticipated trading levels for March, April and May around 1780 for 19.0 and 1740 for 21.0.

AUD Commentary

By Garry Booth

It was an extraordinary week in Global Markets, with panic driven by the spread of Coronavirus. On Tuesday the U.S Federal Reserve stunned markets with a .50 point rate cut to 1% which ironically spooked markets further, sending Stocks markets tumbling and seeing a large sell-off of the USD. To the surprise of many the Australian Dollar powered higher, rallying from Monday's low of .6456 to a mid-week high of .6645 before easing a little into Friday at .66908. On Thursday night the Dow dropped 1,010.46 points, or 3.73%, to 26,080.4 as shares in Aircraft, shipping and hotel companies fell. Estimates suggest airlines will lose more than $113 billion in revenue this year. The USD came under further pressure as markets are now pricing in another 25 pts rate cut from the Fed at its March 17-18 meeting. to counter coronavirus impact. On the flip side data out of China and Germany showed some recovery, with Germany’s construction sector growing for a sixth consecutive month led by a strong lift in commercial activity. In better news this week Australia’s Trade numbers surprised with a bigger trade surplus of A$5.210 billion in January, and very importantly Australia’s GDP numbers also surprised climbing  0.5% 0.4% expected.On a yearly basis, GDP advanced 2.2 percent, faster than the expected growth of 2 percent. The GDP data came a day after the Reserve Bank of Australia cut its key rate by 25 basis points on Tuesday to a record low of 0.50%. 

Technically the AUD is in a strong correction higher, after the heavy fall last week. We expect this may have more to go to resistance of .6680 then .6750. However we still believe the main trend down and the Aussie will make new lows in the weeks ahead.