Wool ends season on solid ground

02 Jul, 2015 02:00 AM
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While the demand from China had been exceptionally strong, Australian wool supply had been limited

WHILE the 2014-15 wool selling season didn't finish on the high punters had hoped for, the Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) still climbed a solid 247 cents a kilogram for the financial year.

The 24.3 per cent price lift for the season was the sixth-best result in 35 years of tracking the EMI, said AWEX senior market analyst Lionel Plunkett.

The EMI averaged 1099c/kg for the season.

Last week the indicator lost 57c to close at 1263c/kg - the largest weekly fall in more than two years.

In US dollar terms the EMI finished last week at 978c/kg, down 41c/kg, however it was 23c/kg higher for the season than for 2013-14.

ANZ Research senior agricultural economist Paul Deane said the second quarter of 2015 had been the strongest period for Australian wool producer prices since the heady days of 2011.

He said Australian wool prices surged 30pc in April and May before retracting modestly in June.

"What is different to this year's rally versus 2011 is the subdued price activity in many other commodity markets.

"By contrast, the spike in wool prices in 2011 was - in conjunction with most commodity markets - also hitting record highs."

Mr Deane said the abnormal seasonal strength in wool prices this year was seeded in 2014 as Chinese mills ran particularly hand-to-mouth for that period.

"Wool stocks in China heading into 2015 were particularly run down, with China having to restock aggressively in preparation for the upcoming northern hemisphere winter season."

He said for only the second time on record, China's wool imports in 2015 had exceeded 150,000 tonnes in the first five months of the calendar year.

While the demand from China had been exceptionally strong, Australian wool supply had been limited.

And according to Mr Deane, supply would hit its lowest level in 90 years for 2015-16, with production forecast to decline at its fastest rate in six years to 320 million kg.

He said the Australian sheep flock was estimated to have fallen to 71.8 million head by the end of June, only two million head above the record low reached during the 2010-11 season.

Mr Deane said the retreat in wool prices in recent weeks indicated the seasonal peak in wool prices had passed, but prices were not forecast to fall back to 2014 levels.

He anticipated reduced wool supply from Australia would stabilise the 21 micron wool prices at 1300c/kg through spring.

"Prices could then potentially retest the may high again late in 2015 or in early 2016."

Elders northern wool manager Bruce McLeish said demand for wool had not disappeared despite the market correction.

"Most would agree the market did get a little bit overheated three to six weeks ago. Once a correction appears in the wool industry it's not unusual for the market to give up 50pc of it rally," he said.

Mr McLeish said the volume of wool available when sales resume after the July recess may not be all that large- given the increased volume of wool sold this season compared to the previous year.

"The market may just have enough momentum to carry current prices through August-September."

The National Australia Bank (NAB) released its forecasts for the wool industry last week and predicted the EMI would average 1225c/kg in 2015-16, compared to ABARES' forecast of 1230c/kg.

NAB was more pessimistic about Australia's wool production, predicting it would fall by 4.4pc, while ABARES predicted that shorn wool production would decline by 2.9pc.

Around Australia last week there were 45,052 bales offered for sale, almost 10,000 more than the initial estimate three weeks ago. The spike in bales resulted in 16.9pc passed in at auction, up 9.9pc on the week prior.

For the 2014-15 season there were 1,972,130 bales offered in total, up 136,308 bales on last season.

The pass-in rate for the season fell 2.6pc for the season to 8.1pc compared to 10.7pc in 2013-14.

Next week is the last week of auctions before the three week July recess.

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FarmOnline

Cara Jeffery

is the national sheep and wool writer for Fairfax Agricultural Media

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