Hope for wool to get a spring in its step leading into auction recess

Tight supplies create rays of light through market gloom

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It appears the amount of textile machinery operating across the globe at present is able to consume about 20,000 bales of wool per week and could get congested if supplies were to dramatically increase in the short-term.

It appears the amount of textile machinery operating across the globe at present is able to consume about 20,000 bales of wool per week and could get congested if supplies were to dramatically increase in the short-term.

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Despite last week's price drop, short wool supplies offer hopes of a correction leading into the coming auction recess.

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A bit like a moisture-deprived barley crop sown a few weeks ago, the green shoots of recovery in the wool market turned a bit yellow and wilted slightly last week.

Still hanging on, and nothing a decent dose of demand won't fix - but no longer green and vibrant either.

On resumption of auction sales on Wednesday after a long weekend in most of the country, and despite the currency acting like a hot north wind and sapping moisture from the soil, wool prices in Melbourne and Fremantle were quite solid.

Thursday, however, saw the wobbles set-in and prices eased in Melbourne and Sydney.

Superfine Merino fleece lost 20-30 cents a kilogram and the medium Merino sector finished lower again, with 30-40c/kg coming-off levels from the previous day.

But it was not all doom and gloom, as the skirtings segment finished unchanged; crossbreds added 5-10c/kg; and carding buyers saw enough rain on the long range forecast to push prices up by 15c/kg.

All industry players would like to see a heap of new orders come down the pipeline - and for wool prices to soar back to pre-COVID-19 levels and everything to return to normal. But it is simply not going to happen yet.

There has been so much damage done to both the psyche and financial health of enterprises at the end of the wool pipeline that some fairly intensive treatment needs to occur, and perhaps there will be a few casualties as a result.

Nevertheless, there are plenty of retailers who do have a 'clean bill of health' and are going about the business of re-opening - at the same time taking stock of their business, the competition and basically the 'moisture profile in the soil' around them.

For them to rush out and buy six months' worth of raw material, given the uncertain forecasts, would be considered somewhat reckless by most corporate governance experts.

They know the wool, and other fibre, is there and that there is a smattering of stock along the pipeline, so the first few to pull the trigger can take advantage of this and shorten the lead time to shelf.

So, the wool market is bumping-along in a trading range - with prices probably at the bottom. But, then again, barley growers thought it would rain in 2018 and again in 2019.

Retail activity has not stopped completely. But probably the most disconcerting aspect for the retail fraternity is the unevenness of consumption - both around the globe and in individual markets.

Those with a strong, well-constructed online presence are still selling online and - importantly - have been able to maintain contact with their clients.

Those who have hastily jumped into the online space have seen their margins evaporate toward the hosts of web selling platforms - a bit like the delivery companies have done to the new take-away service many restaurants have been forced into.

Retailers with only bricks and mortar facilities have emerged from hibernation, launched their summer collections (in the northern hemisphere) and tried to entice customers in the door.

They are simply not in a position yet to place orders for an autumn-winter collection until they have sold at least a portion of what they have on the shelves at present.

The hapless textile processor, meanwhile, has to fight competitors for the meagre orders in the market - filtering through old expensive stock in many cases to keep cashflow turning over and wondering if the industry will get back to anything like normality this year.

A lot of capacity has been taken out of the system temporarily, which in most cases reduces risk, but also raises the unit cost.

The lucky few operating where government assistance is provided for worker salaries can weather the storm considerably better than those without any such assistance.

Those enterprises with a vertical structure, or those operating across a large chunk of the pipeline, have slightly more control over their destiny than the 'one pony trick' operators who are struggling with finance and credibility issues at present.

Every crisis since the dawn of time tends to weed-out quite a few of the more marginal operations, and this will certainly be the case in the textile industry this year.

How that translates back to wool demand and price activity in the auction room is yet to be determined. But it will certainly make the recovery of prices a little more difficult and slower.

On 'the other side', the industry will be in good shape - simply because Merino wool is a great product and people still want good value, natural, sustainable products that perform.

But getting to that point may take another six months and there are plenty in the textile pipeline getting a little nervous about how much wool might be dumped onto the auction market in the new financial year, or when the usual spring flush arrives in August-September.

It would seem that the amount of machinery operating at present is, very roughly speaking, able to consume 20,000 bales of wool per week.

If the industry were to be asked to digest 50,000 bales in an auction week, some serious indigestion could develop.

But the annual recess is also approaching and this will mean three blank weeks in the auction calendar that will need to be covered before or after the recess for production requirements.

Assuming governments continue with their willingness to print money in the short-term, consumer confidence will gradually build and retailers will consequently gain confidence.

The whole market is at such a low ebb at present that it will not actually take much activity to lift spirits.

Something equivalent to getting 10mm of rain on a struggling barley crop will buy enough time to get through to the next forecast period.

Similarly, an exporter selling a couple of boxes of greasy wool will keep them active in the room for another week.

If a fabric salesman is able to sell 2000 meters of fabric, he will have a spring in his step and look forward to coming to the office again next week.

The story Hope for wool to get a spring in its step leading into auction recess first appeared on Farm Online.

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