Pass-in rates hide poor demand

29 Aug, 2001 10:00 PM

ONE in four bales were passed in at auctions around Australia last week, as growers firmly gripped the newfound optimism in the wool industry.

The price slump in the three and a half weeks of post-stockpile sales has been interpreted as a short-term correction by growers, who have responded by either removing bales from the auction system, or maintaining price reserves at pre-stockpile levels.

As a result only 48,000 bales of wool from 63,600 offered sold at auction last week.

This is down from about 61,700 of 66,900 sold at the same sale last year.

Because wool price indicators ‹ including the AWEX Eastern Market Indicator ‹ do not take passed-in lots into account, last week's results are probably worse than the 11c/kg drop the EMI would suggest.

Many analysts attributed the softer market to the strengthening Australian dollar, and this certainly affected the buying activity of Chinese customers, whose currency maintains parity with the US$.

Elders' general manager of wool, Steven Read, said changes in the strength of the dollar stalled Chinese activity.

"It's a short term issue, until they can re-work their cost structures," Mr Read said.

"There are not many other places they can go (for high quantities of wool)."

High levels of sales prior to the demise of the stockpile are also still in the processing chain ‹ allowing buyers to hold out until more wool becomes available at cheaper prices.

From June 30 to July 19 this year more than 65,400 bales of auction and stockpile wool was sold each week, despite a one-week break from auction sales during that time.

But whether producers give buyers immediate access to cheaper wool is debatable.

With the positive publicity and strong prices in the run-up to the demise of the stockpile, a positive mood has emerged from within the ranks of Australian wool producers.

Spring ram sales have reflected the positive mood, with last week's Katanning ram sales in WA peaking at $54,000 and averaging $7102, up $2820 from last year.

"Farmers are doing this in the expectation that the market will recover," Australian Wool Industries Secretariat executive director Bob Quirk said.

Other farmers are waiting for European buyers to return to the market, to more accurately gauge the demand for Australian wool and make marketing decisions then.

"There is a general feeling (among processors) that demand will drop off," Mr Quirk said.

"The harder question is when this will occur, and by how much."

The relative strength of the Australian dollar and relative price of wool against cotton and synthetic fibres will have the greatest bearings on this.

European wool buyers are set to return to the fray this week, after their annual summer break, and are sure to bring some welcome competition for finer wool, which has seen the greatest price drops of recent weeks, Mr Read said.

"Europe takes 55 percent of the fine wool in Australia," he said.

"Why would you accept prices you weren't happy with when your major buyers were not in the market," he said.



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