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Wool growers opt to hold bales in storage as prices dip 50-90 cents

by Sheep Central, 06 July 2018

Growers are holding wool in storage as prices dip.

AUSTRALIAN growers held back more wool this week as unfavourable currency rates affected Chinese demand, sending auction prices generally 50-90 cents lower.

AWEX senior market analyst Lionel Plunkett said the benchmark Eastern Market Indicator lost 62 cents this week, closing at 1994 cents a kilogram clean.

“This was the largest weekly fall in the EMI since August 2012.

Many sellers were reluctant to accept the reduction in prices and this was reflected in a 9 percent increase in the national pass-in rate to 15.6 percent of the 43,880 bales offered.

Mr Plunkett said the first sales of the 2018/19 wool selling season are traditionally some of the larger sales on the roster, as sellers holding wool for tax purposes enter the market.

“Wool held over for the new selling season was significant, with wool older than 180 days representing just over at third of the national offering and nearly 57pc of the Western region offering.”

Mr Plunkett said the softer market tone that was evident in the previous sale, was apparent from the outset and corrections were felt across the entire Merino spectrum, on all types and descriptions.

“As is often the case in a falling market, it was off-style types, wools with poor additional measurement results and those carrying excessive vegetable matter that were most affected.

“By the end of the week prices had generally fallen by 50 to 90 cents, with some off-style types over 120 cents cheaper.”

Mr Plunkett said the skirtings also suffered large corrections, with prices generally falling 50-100 cents. Lots carrying more than 5pc vegetable matter content were most affected.

“Although the oddments attracted excellent buyer support, most types fell by 5 to 15 cents, wool finer than 18.5 micron least affected,” Mr Plunkett said.

Forex movements are major factor – AWI

Australian Wool Innovation’s weekly market report said the major factor in the rapid turnaround in the fortunes of the auction markets was the significant movement of the forex rates of the Chinese Yuan currency (CNY) versus the $US.

“The past three weeks or so has a seen a divergence of around 7pc in that rate of exchange, which basically means the Chinese mills have to come up with more than 7pc of CNY to fund the same amount of $US to purchase raw wool in just four weeks.

“The rates have largely been considered to have been pegged against the USD but this latest break way is far too great a magnitude to rely upon that theory any more,” AWI said.

AWI said a common thought is the Chinese operators needing wool for the past month have largely relied on indent operators to secure the minimum supply required.

“This is mainly due the adverse forex rates CNY v $US and forward sellers being reticent to expose themselves to forward risk without cover.

“This certainly appeared to be the case again this week as the larger indent buyers consistently topped the Merino offering and were near the top on crossbred buyers list at auction throughout the week,” AWI said.

With the pass-in rate hitting 15.6pc, AWI said it’s interesting that some sellers now believe their wool is worth an average of over 2000c/kg and are not willing to sell at lower prices.

“Growers also reasonably suspect there will be no immediate increase in supply, so are prepared to hold.”

Next week is the final sale before the annual mid-year three-week recess. Quantities have slightly reduced, currently there is 41,431 bales rostered, with sales set for Sydney, Melbourne and Fremantle.

“The relatively large volumes will most likely see a maintenance of the current sentiment, as the high value of wool and high costs of holding wool remains an inhibitor to stock taking locally,” AWI said.

Click here to see the latest AWEX Micron Price Guides.

Sources: AWEX, AWI. 

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