Quality Tasmanian wool bolsters first day of auctions

Quality Tasmanian wool bolsters first day of auctions

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At the end of the week, the market, as measured by the AWEX Eastern Market Indicator, dropped 10 cents a kilogram.

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"Yeah, nah" - the crazily contradictory saying often verbalised by the millennials these days aptly describes the wool market last week.

It started off quite bullish on the first day of selling based on some superior Tasmanian wools being available, although if the extra freight charge is subtracted a little less so.

On the second day of nationwide sales there was a continued bullish theme as the news of slowing infection rates in China were greeted with enthusiasm in many markets.

With a slightly less stylish offering in the superfine area in particular, and a perception by some Chinese buyers that 17.5-micron wools and finer were comparatively dear, the market overall drifted, but the tone was still optimistic.

On Thursday however, China announced a different method of analysis of infections - possibly as a pre-cursor to coming clean on the true number of cases, and this saw the mood drop around the world.

The wool market followed many other markets in deflating.

Again, the vagaries of the wool market saw the few available lots of superfine, stylish wools boom, with the bulk types of lesser quality and broader wools easing a little.

At the end of the week, the market, as measured by the oft maligned AWEX Eastern Market Indicator, dropped 10 cents a kilogram, but as is often the case, within this move there were distinctly differing trends.

Good quality superfine wools enjoyed strong support, whilst average quality Merino fleece was found wanting.

Crossbred wools reversed recent trends and rose 30 to 50c/kg.

Similarly, the carding sector reversed their recent trend, but conversely this saw them decline by 30c/kg.

Such is the fragile nature of the market at present that the presence or absence of a few orders, or a couple of major buyers can affect an individual segment much more than we would normally see.

One such factor, which is particularly evident at the moment, is the renewed vigour of the European fraternity who are buying significant amounts of greasy wool for processing in areas other than China.

With the total shutdown of Chinese operations continuing and a seemingly movable restart date pending, early stage processors in Australia, India, Malaysia, Egypt, Bulgaria, Czech and Italy are seeing a renewed level of focus.

The need to keep things moving in order to have products ready for the autumn/winter 2020/21 season, which equates to garments on shelves in September, means that many cannot simply sit and wait, and hope that Chinese processors will be able to ship next week, or next month.

In the long run, well after the current disease outbreak has been controlled there will no doubt be some soul searching about having all the "eggs in one basket" in terms of a supply chain.

This is not unique to the wool industry, and we are already seeing car manufacturers and many other industries shutting down as the supply chain linkages break.

With 75 per cent of Australia's greasy wool normally heading first to China there is not a lot of slack in other processing avenues, but it does highlight the risks with such a reliance on one link in the chain.

Holding stock somewhere and using other origin wools can and does alleviate the problem to a degree, but many planners will be thinking about prevention strategies for the future.

Of course, if the wheels in China do start turning soon, a lot of processors can catch up, and the amount of effort and stimulus China throws at the problem will be immense.

But the issue at present is still the uncertainty.

Factories were initially forecast to begin resuming production and shipment this week with skeleton staff.

That directive seems to have been revoked, and only essential services are allowed to operate in most provinces.

Perhaps next week will see a more widespread resumption, but nobody really seems to know.

Given the pressure downstream the wool market is holding up remarkably well.

Of course, having nearly a quarter of the wool withdrawn and passed-in helps to alleviate that pressure and maintain price levels, but many other industries or commodities would be in free-fall by now.

Exporters and traders are frantically trying to secure more credit lines to bridge the financing gap and many are appreciative of the extra payment terms granted by growers in this case.

It is certainly better as a grower to incur a delay in payment, with virtually no added risk, than to see an exporting company fall over because their overseas customer has been unable to remit funds.

Such an incident could quickly result in a domino effect, destroy the pretty much impeccable record of greasy wool payments, and precipitate a collapse in prices.

So, it might be a small inconvenience but if a broker asks for it, it may be the best way in which growers can help to maintain price stability at this point.

There are a great many predictions being bandied about in the media, as experts try to quantify the economic impact of this tricky little bug with a name similar to a brand of beer.

Updates appear daily, but HSBC's China economists who are arguably close to the action, expect mainland China's growth to slow to 0.2pc quarter-on-quarter in quarter one, but pick up to 2.3pc quarter-on-quarter by quarter two.

Overall, for 2020 they expect GDP growth to be 5.3pc (previously they had expected growth to be around 5.8pc).

No doubt the Chinese government is ready to pull every stimulus lever available when the coast is clear, and SARS did not have a lasting economic impact.

Sunshine, warmth and arguably more natural fibres in our lives will defeat this disease in coming weeks.

The story Quality Tasmanian wool bolsters first day of auctions first appeared on Farm Online.

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