AUSTRALIAN wool growers are supporting prompt payment and storage periods extensions by several brokers for buyers for the next four weeks, after China extended its coronavirus lockdown.
The Australian wool trade was advised this week that Chinese officials have ordered at least 21 provinces, municipalities and other regions in China to not return to work until 10 February 2020. Hubei, the provincial capital of Wuhan, the outbreak’s epicentre, has extended its Lunar New Year holiday to 13 February.
The lockdown has affected Chinese banking, with some letters of credit not being opened, putting pressure on wool purchase financing. Freight forwarding and third party logistics company BTi Logistics this week told clients to be prepared for potential delays in documentation, clearance or shipment schedules.
Stored wool is not released until it is paid for, but the payment and storage extensions give traders and exporters greater financial flexibility to continue trading. Sheep Central has been told the grower clients of some brokers are also accepting a week-long delay in payment, while others will be paid as usual.
Prompt extension initiated by exporters
The Australian Council of Wool Exporters and Processors executive committee last week agreed that wool sales should continue and suggested that extending prompt payment and storage periods might offer some relief toward reducing negative auction results.
In advice from ACWEP executive director Peter Morgan, the committee proposed that sales should be allowed to continue given that 23 percent of Australia’s wool exports go to countries other than China, perhaps more with consideration to current circumstances.
Exporters have commitments and growers should retain their right to be able to offer their wool for sale, Mr Morgan said.
Directors of the National Council of Wool Selling Brokers of Australia last Friday agreed with the importance of continuing sales, but said any variation of prompt payment and storage periods is a decision for each individual broker and not a matter for NCWSBA decision.
ACWEP president Matt Hand said there is still concern about when all staff throughout the wool supply chain in China will return to work.
“It’s unloading vessels, it’s clearing customs, it’s transport and factory workers, even when the wool gets to the mill.”
He said wool was still being bought for shipment to China, although what is bought now might not arrive for at least a month.
“They still need to stay in front of their purchasing to ensure they can meet commitments at the other end, they have got to plan ahead.”
He said markets which buy about 25pc of Australia’s wool were also active, although there was still uncertainty and negative sentiment.
Mr Hand said the offering of less wool each week because of the uncertainty was adding to price volatility, with a lot of wool being withdrawn before sales.
“The good thing is that sales are not being suspended, sales are continuing.”
Six brokers extend payment and storage periods
Up to this morning, six Australian brokers had agreed to extend prompt payment and storage periods for wool bought at auctions over the next four weeks.
Dubbo-based broker Macdonald & Co will be extend prompt payment period by an extra seven days to 14 days, in the coming four sale weeks commencing this week (Week 32), when it will be reviewed. Buyer storage dates will also be extended five days beyond its usual free storage period to the following Wednesday after sale day.
Macdonald & Co owner Don Macdonald said the company had extended the payment and free storage periods to hopefully alleviate the pressure on buyers due to the lockdown on people movements in China.
“So it is clear to us that buyers have had an interruption to their cash flow because of the Chinese Government extending the lockdown until the 10th of February.
“I’m very conscious of the fact that exporters work on small margins and we treasure the fact that growers can get their money turned around so quick after the sale.”
He said growers’ interests are safe because wool is not released until it is paid for.
“If we can help them (the buyers) and minimise the impact on the actual price of wool, that’s important.
“That’s the number one consideration for us, we are trying to maximise the price for our growers.”
Mr Macdonald said his growers have been consulted and have accepted they will get their sale proceeds a week later.
“We don’t want to stop this market from operating and stop them from getting a cash flow, particularly out here where money is so tight.
“So we are giving growers a choice, saying this market may be a bit rocky, but we are trying to alleviate the pressure on buyers by extending the prompt,” he said.
“They’ve got the choice, they don’t have to offer.
“I think it is small change to minimise the impact on the wool market.”
Some buyers in Europe will be less affected by the situation, but can also avail themselves of the extended payment and storage periods, he said.
Beecher Wool has also advised it will extend its prompt payment and free storage periods by an extra seven days to 14 days for four sale weeks, starting this week. Owner Wayne Beecher said his clients are accepting payment a week later, but he would make earlier payments if requested.
Techwool Trading will extend its prompt payment and free storage periods by an extra seven days to 14 days on a weekly basis. The company’s grower clients will be paid under their normal terms and conditions.
Western Australia-based Spearwood Wool is extending prompt payment and free storage by seven days from this week on a week-by-week basis.
Temora-based broker Moses and Son is also extending prompt payment period and free storage by seven days from next week up to Week 35, when it will be re-assessed.
Geelong-based broker Ackroyd and Dadswell is extending its prompt payment and free storage by seven to 14 days from this week on a week-by-week basis, with growers being paid as usual.
Mr Morgan said the extension of prompt payment and storage periods was a good example of the industry working together at a difficult time.
“These fellows have set a standard,” he said.