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Australian Wool sale (28 June) – AWI Commentary

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The last selling week of this season has just past. Whilst a bit of a soft finish occurred, it hardly takes the gloss off what has been a stellar 2017/18 Australian wool auction year. The subdued interest from the trade continued into this week selling and a mellow AUD forex movement against the USD allowed the buyers to try and let the market drift backward.

In reality this was rather ineffective as by the close of selling almost all better wool types and descriptions started to gain momentum once more. The AWEX (Australian Wool Exchange) EMI (Eastern Market Indicator) did decline 17ac for the week and closed at 2056ac/clean kg. Year on year the EMI improved a substantial 531ac/clean kg or 34.8%.

The EMI when expressed in USD shifted 12usc lower to 1512usc/ clean kg, a similar percentage loss in line with the AUD EMI. The year on year comparison shows a net gain of 354usc or 30.6%. The forex of the AUD versus USD had a relatively stable season after starting the year at 0.7597 and concluding today at 0.7353, albeit with some sporadic, large variations up and down providing some spark to, and some negative impacts upon, the market.

To high light what a robust market price is currently available to wool grower sellers, the seasonal average of the market for 2017/18 was an EMI of 1729ac/clean kg or 1337usc/clean kg. Those average seasonal rates sit 16% lower than what is available at auction at the moment. Latest figures also show that these extraordinary gains have occurred in a season where supply was unchanged to slightly higher, but anecdotally this supply has been pumped up by growers choosing to go to 6 to 8 month shearing intervals instead of the normal 12 month pattern.

Good news for some of wool growers as some reasonable rain falls were recorded in parts of NSW, mainly across the North West, Western and Central areas. Some areas had over 60mm but most regions had half or less of that figure. Unfortunately most other drought affected zones remain dry, and will eventually impact on the ability of growers in those regions to retain the stock that they would ideally keep for wool production.

For the third week in a row, the mills in China have generally been somewhat restrained in their purchasing and remained pretty well coy in their intent. The larger indent operator remains active but the lack of any significant forward contract buying has pushed the market into a softer period for the time being. The more active players in the market were the large trading exporters who dominated the buying lists daily.

The markets this week may have been impacted to a slight degree by some gains in rostered quantities from the original forecasts. Last week 16% of additional quantity was added to national rosters, which mostly occurred in the Sydney centre. This seemed to provide angst to some operators, but this situation has happened pretty consistently for years now. What is significant though this year is that, even with that additional quantity, we are in fact offering 15.5% less bales next week than at the same sale last year.

In addition, the following week, which is the final sale prior to a three week recess in sales, we also have 21.6% less bales to be offered than the “week 2” sales of July 2017. Next week is the first week of the new selling season and is traditionally seen as a buying opportunity for exporters to complete outstanding contracts at more advantageous buy in levels. The larger volumes usually allow for more beneficial purchasing, but with comparatively lesser bales than normal to be auctioned, the chances are likely very slim this year for that to happen.

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