The brief period of confidence that appeared last week at the Australian wool auctions evaporated wholly at this week’s markets. The fundamentals across all textiles has shifted comprehensively to risk adverse operations for all parties involved. An almost complete blockage of the global supply chain has all participants treading carefully and trying their best to safeguard their businesses and employees. This meant that only the bare minimum of both price and volume was available to sellers from buyers and their overseas clients.

The result was monumental for all the wrong reasons as all wool types and descriptions moved into freefall as the auctions progressed. The buyer support last week was apparently a result of Chinese wool buyers assuming  Australia’s wool industry would be going into lockdown - similar to most other global producing countries. Early in the week when it became clear that auctions were to continue last weeks decision to buy proved somewhat premature. This was exacerbated by the confirmation of the extra sale week going ahead in week 42 where a recess week had originally been rostered. 

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) plummeted 155ac or 10.8% to 1287ac clean/kg. This matched the unwanted record of the largest percentage fall in the AUD EMI to have occurred in the past two decades. The US Dollar (USD) EMI was significantly affected as well but less so given the continuing recovery of the AUD against the USD, as well as all other major currencies. In USD terms EMI dropped by 7.8% or 67usc to a closing level of 788usc clean/kg. The passed in rate this week was 44.9%, one of the highest to be seen.

Bearing in mind the USD rose 6.8% last week, the true demand indications are not as disastrous as they first appear. Growers are paid in AUD, so that is the currency by which woolgrowers run their businesses. Supply is becoming even scarcer as evidenced by the latest key test data from AWTA which has year on year wool tested comparison at 6.5% lower. 

The advice from textile leaders last week from China indicating they are now almost back to full gear operation seems somewhat inconsequential now. Under the present global operating conditions, it is problematic that that nation relies upon supplying a great portion of the rest of the world in textiles. If those businesses in those countries fail to meet contractual obligations then the chain breaks and reassessment needs to be staged, usually resulting in an initial raw material price and demand reduction.

This reneging or failure to uptake contracts on time from further down the textile chain is rumoured to be occurring at the garment retail and wholesale stage and almost exclusively outside of China presently. Most of the Chinese deliveries are still being accepted as reportedly, retail tries to return to normal there. This situation, rightfully or wrongfully, is being executed under the international force majeure terms written into most contracts as standard term or condition. 

Whether force majeure  is apt or not in the current circumstance is debatable. The modern use tries to “apply a standard of "impracticability," meaning that it would be, if not necessarily impossible, unreasonably burdensome and expensive to carry out the terms of the contract. The event that brings this situation about must be external to both parties, unforeseeable and unavoidable.”  Hopefully as time goes on the online sales at least can replace the lost sales currently from bricks and mortar retail of wool.

Next week has around 44,000 bales scheduled for auction. 

AUD Commentary - SA Markets

By Garry Booth

Remarkably, the Australian Dollar held most of last weeks strong rally, and traded within a relatively narrow band (given huge global volatility). The AUD started the week on at .6212 before falling on Wednesday to .6040 after a Reserve Bank of Australia (RBA) warning, before lifting Thursday to .6085. 

On Wednesday the RBA released the previous minutes which said “Australia is set to undergo a very material contraction over the first half of the year and maybe longer” At that out of cycle meeting the RBA moved to reduce the key interest rate by 25 basis points to 0.25 percent and launched an asset purchase programme. 

Despite the gloom, some statistics have genuinely surprised to the upside. In Australia, building approvals lifted 19.9% for February against expectations of 3.0% rise, while the Australia Manufacturing sector expanded in March according to AiG data as the Index rose to 53.7 up sharply from 44.3 in February,  almost entirely due to a huge surge in demand for manufactured food, groceries and other household essentials. 

U.S data also surprised as U.S. Private Sector Employment for March showed a modest 27,000 jobs lost, against an expected 150,000, while U.S. Manufacturing activity surprised with contracting in March from 49.1 in March from 50.1 for February. Economists had expected a fall to 45.0. 

However that didn’t stop the Dow overnight falling 974 points or 4.44% to 20,943.51 after President Trump warned on the rising death toll saying overnight “this is going to get a lot worse and will be with us much longer than expected.” 

Technically the strong rebound in the Aussie washed out its very oversold state, so for the moment the bias is neutral. Strong resistance is seen at .6230 then .6340 while support is found at .5980 then .5810. A break below support will target a re-test of .5506. We still maintain over the coming weeks the AUD is likely to re-test the lows.

Forwards Commentary - SA Markets

By Mike Avery

“When you’re at the end of your rope, tie a knot and hold on” - Theodore Roosevelt

Volatility and risk came back to the market with a bang. The prices at the auction came off at a rapid rate and triggered strong selling interest again in the forwards. For the second week in a row the spring and summer period dominated the trade window. The forward market traded down 100 cents with 19.0 micron executed at 1440 to 1450 in September and October. In auction the 19.0 micron index was quoted down 170 cents for the week falling 110 cents Tuesday and 60 cents Wednesday. What were termed disaster insurance levels at 1520 to 1550 last week on the forwards now look sound hedging as the 19.0 index dipped below 1500 for the first time in 4 years.

Where do we go from here is the question on the lips of both buyers and sellers. The unprecedented volatility has seen prices move more than 30 cents in a single day for the tenth time this year. In the 19.0 micron category the forward market closed Wednesday evening bid at 1370 and offered 1450 throughout the spring having traded to a low of 1415 in January and February 2021. 

Growers looking for price insurance into the spring will need to target close to 1400 to attract attention of downstream processors in the current environment. Hopefully buyers will be looking at the technical charts to find long support levels.