WOOLGROWERS and brokers are starting to wonder not when, but if, a pre-Christmas rush is coming to the Western Wool Centre (WWC) this year.
After this week, there are eight days of live auction wool trade left before the WWC shuts down for three weeks over Christmas and the new year.
In previous years the influx of spring wool, coupled with the impending Christmas shut down, has seen increased buyer interest, auction offerings pushed above 5000 bales and firmish markets through November and December at the WWC.
November last year marked the start of a record price run that lasted until the final trading day of the year.
But not this year – at least not yet.
Wool prices across the board have been sliding for seven of the past eight trading days up to the end of last week at the WWC – Thursday, October 25, was the only exception when the slide halted temporarily.
Generally, finer micron wools have led the way down.
The Western Indicator (WI) slipped below the 2000 cents a kilogram clean benchmark on Wednesday last week for the first time since May 10, according to Australian Wool Exchange (AWEX) data.
The WI was the first of the AWEX selling centre and national indicators to break through that barrier for the first time in May.
While brokers confirmed good specification wool is flowing steadily into woolstores now shearing teams have caught up on August and October rain disruptions, this has not been reflected in auction offerings.
Apart from an offering of 4469 bales, the day the market started to slide a month ago, most of the offerings of the past eight auction days have been below 3500 bales and down to 2806 bales, as woolgrowers wait for a market turnaround before putting their clips up.
Wheatbelt farmers are concentrating on harvesting grain crops so selling wool is on the back burner until harvest is completed.
By then, with grain income in their pockets, they can afford to wait and sell wool at a time of their choosing rather than with an imperative of generating cash flow.
Apart from Tianyu Wool, which has consistently been on AWEX’s list of major auction buyers at the WWC in the past four weeks, interest shown by other traders supplying Chinese woollen mills – including Seatech Industrial, normally the biggest buyer – has been patchy.
Global constraints on credit, due in part to uncertainty in the lead up to the United States’ mid-term elections and likely impact on the US-China tariff war, is one factor blamed.
As well, European wool buyers are tending to source more wool out of New Zealand than WA at this time of year, a point made by Modiano Australia’s WWC buyer Greg Horne.
Local woolgrowers’ slow take up of completing the national wool declaration handicaps Mr Horne’s ability to buy more WA wool – he took 6.5 per cent of the offering last Thursday – as he can only bid on better styles and then only those with a completed declaration.
Matching buyers’ lack of interest has been sellers’ determination to hold out for better prices seen three months ago.
The number of bales withdrawn before auction, as woolgrowers and brokers pick up trends in earlier trade at the Melbourne and Sydney selling centres and high pass-in rates, have become a noted feature of recent WWC sales.
On Wednesday last week almost half of the 1083 bales of Merino oddments offered at the WWC failed to find a buyer or to attract a bid.
In his market report AWEX technical controller Andrew Rickwood noted: “There continues to be seller resistance to the reduction in price, resulting in nearly one third (30.1pc) of the fleece offered being passed in”.
The following day 41pc of what was left of the Merino fleece offering after 18pc of it was withdrawn before the auction, was passed in.
Woolgrowers and brokers know buyers will have to start bidding at some stage as the wool pipeline into China will empty out over the Christmas-new year period.
It is just a matter of when.
Unfortunately, markets have a tendency to over-correct, so volatility will be common place.
- Southern Aurora markets partner Mike Avery
There were signs last Thursday the price slide was slowing at the WWC, with losses across the micron price guides restricted to between 3 cents and 15c, apart from the 22 micron guide which gained a cent, according to AWEX.
That compared with the previous day where losses across the board ranged from 65c to 74c.
But despite seven auctions of sliding prices, the WWC price guides still finished last week between 22c (18 micron) and 482c (22 micron) up on where they were at this time last year two weeks into a record price run.
But few at the WWC last week were prepared to stake reputations on a guesstimate of where the market might go before Christmas.
Elders’ WA wool sales manager Danny Burkett was reluctant to have a guess.
“We could have a $30 (a kilogram) wool market or a $15 wool market, there’s no compelling argument to say which way it is going to go,” Mr Burkett said.
Three significant factors were affecting the market, he said.
“At the finer end, 18 micron or less, the buyers know that even with reduced volumes there is going to be an abundance of fine wool available because of the drought in the Eastern States,” Mr Burkett pointed out.
“Even if it rained over there tomorrow, we would still have six months’ worth of fine wool.
“It will be fine, it will be short, it will probably be tender and it will be low yielding, but there will be plenty of it.
“Another factor is the carding market.
“I’ve never seen such (price) disparity between equivalent types of wool.
“These types of (cardings) wool are what has led the fleece market for the past 18 months.
“There’s also some capital constraints in the market.
“Some of the wool traders are having difficulty accessing capital – when you’ve got $15 million already (at stake) in the market, finding further capital can sometimes be a problem,” he said.
But a shortage of wool was not a factor at the moment, Mr Burkett said.
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“We’ve still got good wool coming in – good to best top-making wools,” he said.
“But WA’s wool clip this season is going to be finer (because of seasonal conditions).”
Southern Aurora markets partner Mike Avery said market uncertainty had triggered a “flurry” of activity on forward markets nationally last week, albeit with relatively small volumes, as woolgrowers sought to lock in some of the higher prices before they evaporated.
“Last week was a highly volatile week that saw the auction suffer significant losses on Wednesday and try to hold its own to the close Thursday, but still struggled to find support,” Mr Avery said.
“The forward markets traded briskly as some traders moved to the sell side when the spot auction broke through anticipated support levels.
“While growers may have missed the opportunity to lock in forward contracts at peak prices, the ongoing uncertainty demonstrates the importance of adopting a hedging strategy to manage price risk – it’s not about trying to pick the top but about managing margin,” he said.
While end users had indicated inability to pass on recent price levels, willingness to price well above the eight-year long-term average of 1470 cents a kilogram and four-year medium-term average of 1695c/kg indicated continued demand, coupled with supply constraints, should see the market correct above this medium-term average, Mr Avery predicted.
“Unfortunately, markets have a tendency to over-correct, so volatility will be common place,” he predicted.
While volumes remained light, Mr Avery said the basis premium for fine wool continued to tighten with 19 to 21 micron closing from 97c/kg to 54c/kg this week.
Bidding on the 21 micron contract was at 2000c/kg for November and 1990c/kg for December.
“At 50 cents under cash it indicates that exporters still see some downside, but tight supply may slow the down trend,” he said.
This week the WWC was scheduled to offer 8303 bales out of a national offering of 39,883, a big jump up from last week’s 6392 bales out of a national offering of 32,189.