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AWI Australian Wool Market Commentary (16 December 2016)

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The final sale of the first half of the wool selling season was held at Australian wool auctions this week. Wool auction sales will now be in recess for the next 3 weeks. On commencement of the week, this appeared to be pivotal point of the year which could determine the immediate prospects for the continuing good fortune for wool prices. Early thoughts were that one of the largest offerings in recent memory and the initial adverse foreign currency exchange direction were conspiring to prevent any improvement in price levels, but the entrenched strength of demand for Australian wool came to the fore. Pleasingly for most participants a very strong conclusion eventuated. In particular, the Merino sector displayed a competition that many buyers described as being one of the most positive finishes prior to a break seen for some time. On the back of this strength, the Eastern Market Indicator (EMI) pushed higher to close out at 1355ac clean/kg representing a gain of 6ac clean/kg.

Selling started once more as a standalone Melbourne sale on Tuesday where the significant operators displayed a deliberate patience in purchasing. Most seemed to be just testing each other out and intent on gauging the appetite for purchasing from their major competitors. European and Indian interests appeared weak and seemingly satisfied with the inventory they had built during the season, but again it was largely up to the Chinese users as to the direction the market would trend. Typically of these standalone sales, no real information of sentiment was revealed and the market basically sold to firm unchanged levels throughout Tuesday. Wednesday was by far the most noteworthy point of the week as buying intensity lifted to a new level. Although just a few cents were added to the EMI, most of the Merino sector ascended by 10ac clean/ kg or more, and immediately injected confidence which flowed to the very strong (weak AUD assisted) conclusion to sales.

Merino types sold generally 20 to 30ac/clean kg dearer levels, and interest was displayed across all of the micron and type spectrum. Those lesser quality wools which had dragged the market off its’ highs of 2 weeks ago were back in favour again and individual sale lots of these descriptions were as much as 40ac dearer. Perhaps a signal as to what the New Year will bring, there was a reasonable offering of very heavy VM (vegetable matter) (greater than 6%) Merino fleece lots. Unfortunately these wools were selling at considerable discounts with 18.5 to 22 micron types showing a 200ac clean/ kg difference to their lighter fault counterparts. Merino skirtings were keenly sought all week and added a general 10 to 20ac clean/ kg to their already very attractive price levels. Cardings were slightly softer. Crossbreds could not continue their mini recovery this week after a generally tough season to close at levels slightly cheaper than the previous sales series.

The large volumes offered very late at the end of the first half is unusual. On a first impression this seems indicative of the flow on effect of the abnormally wet weather events in July through to September delaying shearing and transport to store. For sure this played its role, but a quick analysis of the wool types on offer shows another side of what is different. A noticeable build up in the numbers of the comeback and crossbred flocks is most likely the larger contributing factor as these resultant crossbred lambs are ideally shorn at around 3 months, whether it be to clean them up for market or for alignment in shearing and management patterns for the rest of their flocks. The wools making up the volume increase are from very freshly shorn sheep, as AWTA can attest to given the massive spike in testing they have had to cope with the past week or two. Additionally, a quick look at the auction sale rosters will also show the increase came about in the crossbred offerings in sale room numberk2 where these wools are concentrated to be sold.

Merino volumes are relatively stable, but given the estimated increase of 0.3 kgs/head in wool cut, perhaps this is masking a slight drop in straight Merino sheep numbers? Australian wool auction sales now go into recess for the annual 3 week Christmas and New Year break. Sales will resume in the week commencing Monday 9th January 2017 where brokers are predicting upwards of a 60,000 bale offering followed by another large sale then a sharp drop off in numbers. Overall though a most satisfying end to an extraordinarily strong and stable period of wool prices.

Source: AWI

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