Wool market at tipping point: AWI

30 Jun, 2014 02:00 AM
Comments
6
 
We are not happy with where the market is at the moment

CHINA has long been “the” important player on the Australian wool buying scene.

But having reached a point where the Asian powerhouse buys 80 per cent of our clip and 95pc of our sales go through auction, Australian growers have found themselves in a tenuous position.

Australian Wool Innovation (AWI) boss Stuart McCullough said this needed investigating. Tightening Chinese fiscal policy and credit in the past 12 months has affected prices.

“We have certainly seen them tighten things up and they are clamping down on corruption and they are not lending in the way they were,” he said during a visit to the Hay Sheep Show.

“However, we think it’s an initial tightening which will loosen up as the year goes on and the wool market should improve.”

He also highlighted 1000 cents a kilogram (the Eastern Market Indicator (EMI) currently is 1021c/kg) as a tipping point below which wool lost growers to other industries.

“That is the vagary of the open cry auction system, and something we are focused on”

“It’s going to upset some people and make some people happy, but the money that you (woolgrowers) provide AWI is about making more money for you,” he said.

“We think this is a touchy point for woolgrowers that needs to be looked at. We can’t think of a time in history when this has ever been looked at before, so we are very keen to make sure we study the auction system transaction between the first owner and the second owner, and to make some suggestions on how we can improve that in the next 12 months.”

He said buyers had raised the supply issue, pointing to the New Year market being flooded with more than 50,000 bales.

“When the market is falling the buyers just sit on their hands and they naturally won’t bid on a falling market - and that is the vagary of the open cry auction system, and is something we are focused on,” he said.

“They are not going to grab a falling knife. They will wait until it hits the ground and then bid away”

He said Chinese buyers likened the situation to “catching a falling knife – they are not going to grab a falling knife. They will wait until it hits the ground and then bid away”. However, he made it clear AWI had little ability to effectively influence supply.

“We are looking at the selling system, mainly the auction system and the lack of other alternatives and getting some suggestions in that area,” he said.

“(We are going to) see if there is some renovation that can be done to the auction system and recommendations that can be made for potentially selling wool in other ways.

“For some reason the auction system sells 95 per cent of the Australian wool clip. We can’t see that in any other commodity in Australia and anywhere else in the world.”

In terms of wool prices, Mr McCullough said AWI was budgeting on an average of 1100c/kg EMI for 2014-15 and national wool clip of 330 million kilograms.

“We are not happy with where the market is at the moment,” he said.

Mr McCullough said the tightening of fiscal policy was largely because of China’s new administration, which entered office late last year. AWI will commission an international consulting firm to conduct the study during the next 12 months.

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FarmOnline

Cara Jeffery

is the national sheep and wool writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Freshy
30/06/2014 5:31:02 AM

Just like the product.....the marketing system is outdated and moreover the behind behind the whole system are stuck in the 1950's. The story of wool is a joke, its up 1 week and everyone is saved, its down the next kill all your sheep. Every year the guestimates are its going to improve and its been in real dollars decline for decades
Percy
30/06/2014 10:55:30 AM

Selling something via auction requires competition as the losing bidder sets the price. Whatever happened to the Russian hope of entering the market? Were they really blocked by the Australian government? Wool production will keep decreasing as the growers are voting with their feet; because the hip pocket (or bank) dictates.
Holy Moly
30/06/2014 11:02:41 AM

The only thing Merino's are good for is keeping the grass down and if your lucky you might make a bit of pocket money at shearing time. But the real worry is our entire economy is China based,so they have us like a monkey on a chain.
Puzzled
30/06/2014 3:59:41 PM

Well you could knock me down with a feather! Fancy the auction system being broken. And please remind me whose strategy it was to shift manufacturing to China? And why don't more producers forward sell?
Chick Olsson
1/07/2014 8:18:39 PM

There is absolutely nothing that AWI can do about this issue, nor should they even try as there is " no market failure" as stipulated under the Wool Privatisation Act. AWI should be focusing on cutting its overhead, reducing staff, outsourcing more projects, and acting like a commercial entity rather than a quasi Govt department.
Ted O'Brien.
3/07/2014 8:23:14 AM

The unique physical characteristics which made wool so readily marketable in the 1980s are still the same set of unique physical characteristics, even more marketable today than then. Wool was wiped out by the acute artificial scarcity forced on it by the Howard government, which bankrupted the entire world trade in wool. The only way to halt wool's decline is to put a floor in the market at a price that supports continuing production until security of supply returns. That would take three years. Government killed the trade. It is reasonable to demand that government fix it.

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