WOOLGROWERS had 1000 reasons to smile this week after seeing the Western Market Indicator (WMI) break 1000 cents a kilogram for the first time since February 2008 and prices hit a 21-year high in US dollar terms.
Last week the WMI closed at 1005c/kg, representing a rise of 91c or 10 per cent in the last four sales, while the eastern market indicator rose 41c to finish at 990c/kg.
The last time growers saw a four digit indicator was in the first week of February in 2008 when the market closed for sale F32/08 at 1003c/kg, after falling from a high of 1053c/kg the sale prior.
The rise in price this week was also on the back of the season's second largest offering of 51,522 bales across the three selling centres.
The western indicator rose 27c on Wednesday and a further 2c on Thursday to finish 29c higher than the previous sale while the eastern market indicator's 38c gain of Wednesday was the largest single rise in three years.
But this is not the only reason growers had to smile ? the strength of the market against the US dollar is also a major highlight.
While other commodities are weakening, wool prices are continuing to surge upwards against the high exchange rates.
Brokers are saying it is a result of demand versus supply and at present the dollar is having no impact.
In US dollar terms the eastern indicator finished at 996c/kg up 70c on the last sale which is a 21-year high.
The National Council of Wool Selling Brokers of Australia executive director and wool analyst Chris Wilcox said the last time prices went this high in $US terms was on March 10, 1989, when the indicator finished at 994c/kg.
At this time the EMI reached 1206c in Australian currency and the exchange rate was US82.5c.
"The peak for the market in US dollars was on May 6, 1988, when it reached 1213c/kg," Mr Wilcox said.
"At this time the indicator in Australian currency was 1580c/kg and the exchange rate was 76.8c."
However, growers are a long way off seeing the best ever indicator in Australian currency, which is 1584c/kg that was achieved on April 22, 1988.
The AWEX weekly market report for last week's sales quoted prices jumped sharply from the outset for all microns but the focus was again on the finer types, which improved the most and have risen 300c in the last three weeks.
It reported the finer types jumped 80 to 90c on the first day followed by a further 20c rise on the Thursday, resulting in them closing over 100c higher for the week, while the medium to broader microns gained 30 to 40c during the sale after easing slightly on the second day.
It said Merino skirtings climbed 20c for the week, while locks and crutchings closed unchanged after an initial rise before easing back on the previous sale levels on Thursday.
This was all on the back of the Australian dollar breaking through parity with the US dollar, closing the week almost 3c higher at 100.5 US cents.
For growers at the farmgate it means a 176kg bale of good, sound 21 micron, 68pc yielding, fleece wool is worth $1190, a value growers have seen rarely in the last 10 years.
Since 1991 a bale of 21 micron wool has only traded above this level 10pc of the time.
Much of the improvement since the start of the selling season in July has been due to the simple economics of demand versus supply.
Mr Wilcox said he wasn't surprised to see what prices had done over the last few weeks.
"Twelve months ago I thought we would be seeing prices rising this season, but the debt problems in places like Greece have played a role in holding prices back to what I expected," Mr Wilcox said.
"I think what we saw last week was the buyers and processors getting worried in regards to supply.
"The AWTA test statistics have just been released and showed the amount of wool tested for the first four months was 7pc below the same time last year.
"I really think this has the processors worried, as initial predictions in August said production was going to be similar to last year, but I think by the end of November we will know what is happening in production.
"In terms of prices I believe we will be in for some ups and downs but overall I believe we will see further improvement in the market.
"We are seeing better demand from retail particularly from the US but also from Europe and this, along with the shortage of stock in the wool pipeline, will feed back in terms of demand for raw wool.
"In terms of the weakening US dollar the Chinese mills are concerned but they need wool as there is none in the system so they will continue to buy."
Elders WA wool sales manager and senior auctioneer Danny Burkett said as brokers they had been just as surprised by the increase in the market as anyone over the last three weeks.
"We didn't see it coming like it has, as the indicator had sat between 900-960c/kg from January through to October," Mr Burkett said.
"Demand has been improving and there is now more interest in the market from Europe than there has been in the past and this coupled with low supply are the biggest factors.
"China is still the biggest buyer in the market but the good thing is that the others areas are now providing competition."
The increase in demand from Europe and India is reflected in the latest export data from the Australian Bureau of Statistics which shows that the share of Australia's wool exports in the first three months of the season has seen China's share drop from 78.1pc to 68.6pc while India has risen from 7.8pc to 10.6pc and Italy has increased from 2.8pc to 5.3pc
Mr Burkett said the the wool pipeline was now becoming void of stocks and this had been reflected in the greasy wool market very quickly despite the high dollar.
"The wool market has gone with the dollar and when supply is low and demand is increasing, the raw product stands above all else," he said.
"The buyers forget about the exchange rate and it comes down to if they want it they will buy it irrespective of the dollar.
"Since the global financial crisis the wool market has defied all other markets and rose through out the late part of 2009 and then has consolidated from January through to October."
Mr Burkett said it is the finer end of the market, 19 micron and finer, which has seen the biggest gains in the last three weeks and it had mainly been European buyers which were driving this.
"There are promising signs for this market with the 300c increase in the last three weeks despite it coming off a low base," Mr Burkett said
Like Mr Burkett, Primaries WA wool manager Tim Chapman said the demand and supply equilibrium were the biggest drivers in the wool market at present.
"The dollar does play a role but in the end supply and demand will win overall," Mr Chapman said.
"It is a long time since we have seen these price levels in the industry, especially for the 20 microns and finer.
"They are very good given where the dollar is currently sitting."
Mr Chapman believes the low supply levels will result in prices most likely remaining close to the current levels in to the second half of the season.
"However we could see the price drop off over the Christmas period when the volumes on offer are lower," Mr Chapman said.
"Currently buyers have substantial orders and will operate in the larger sales creating strong competition but once the volumes fall away over the Christmas period so will these larger orders, but when we see volumes pick up again in the New Year the bigger orders will come back into the market."
From the buyers' front Elders Wool International WA wool buying manager Stewart Raine said they were seeing good overseas demand for Australian wool.
"The demand is coming predominantly from China despite the strong dollar," Mr Raine said.
"The messages we are getting from upstream processors is that the wool pipeline is low on stocks and processors are in a position where they have to buy to meet their customer's demands.
"They are chasing all wool types but the 19.5 micron and finer types are certainly in high demand and the three-way competition between China, Europe and India is driving the prices in this category.
"From what we are hearing the outlook up until Christmas is positive.
"Supply has now become critical to processors.
"There were reasonable stocks of semi-processed wool sitting in stores 12 months ago but these have now been eroded and this coupled with the lower production levels, is why we are seeing the supply versus demand ratio kick in."
