Bumpy ride for wool may continue as trade goes into annual three-week break

Imminent breather in auction sales lets industry take stock

Sheep
Wool stocks being held by growers across the world due to current market conditions are steadily growing and may reach the equivalent of about 30 per cent of annual production by the end of the year.

Wool stocks being held by growers across the world due to current market conditions are steadily growing and may reach the equivalent of about 30 per cent of annual production by the end of the year.

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The wool trade will be hoping prices pick up after the annual auction recess starting next week.

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A feeling of relief followed the conclusion of wool auction sales in Australia last week - as well as those in South Africa.

The market did not exactly shoot upwards, but was steady and positive and there were good clearance rates.

This indicated that growers who offered wool for sale last week were prepared to accept the current market level.

No one in the trade is happy with COVID-19 price levels. But it is what it is and when consumer activity ramps up, so will the price.

Until then, the wool market is stuck in a bit of a rut - bumping along in a trading range and with an industry desperately hoping things do not get worse.

There are some bright spots in the market, with knitwear types still simmering away and a few more uniform orders surfacing in China last week - leading to a better tone for Merino fleece.

Crossbred types followed the general feel of the market last week and rose a few cents a kilogram. But no one is under any illusions about the lack of demand for this segment and a world-wide glut of these types.

Cardings continued on a volatile journey and eased by 20 cents a kilogram.

So, with some types up and others down at national auctions, the overall tone for the market was positive.

An increase in the rostered amount of wool for sale in the final week of auction selling this week prior to the annual industry three-week recess was enough to spook some Chinese traders and mills last week.

But, realistically, an increase of 6000 bales is not going to change the world. It just highlighted how nervous people in the trade are right now.

All of the major Merino types have been operating in a price range for the past three months in US Dollar terms. This has been at almost exactly the same level as we saw back in 2015, before the three-year uptrend started.

Holding the base at this level will be a challenge during the next three months as wool supply increases right across the southern hemisphere.

But when we get into the last quarter of the calendar year, the outlook should be a bit more optimistic.

The challenge for the industry will be to determine which wool types are required and desired, and what is 'just wool'.

Stocks in growers' hands are increasing across the globe, not to an alarming level, but are predicted to be equivalent to about 30 per cent of annual production by the end of the year.

It is not just in Australia that growers have been reluctant to sell. The Kiwis and South Americans have not been willing or - in some cases - able to sell.

It is very difficult to get accurate information about grower-held stocks at the best of times in Australia. But it is not hard to work out that the composition of the wool being held is skewed towards the broader micron edge.

Demand for crossbred wools and, therefore, prices for these types peaked a little later than Merino types on the back of the latest 'fake fur' phenomena in China. But, since early 2019, it has been a one-way trip downwards.

There will be different levels of demand in the months ahead and prices for individual segments will move in possibly disparate, or opposite, directions.

A superfine knitwear indicator will be a very different price chart compared to a hand knitting yarn type of 28-micron.

The drivers for a resurgence in demand, and the stock available to draw on when that demand arrives, will make for a very interesting market.

To lump all the prices together and talk about 'the wool market' will be very misleading.

At the coarse end of supply, demand for woollen carpets in recent years has been largely driven by the construction of buildings in China that needed to be carpeted.

But the Chinese government is temporarily baulking at providing too much more stimulus into their economy. The simple facts mean that to maintain the big ship on an even keel, a lot more stimulus will be required in the months ahead and this will involve construction of a lot of new buildings.

Even in China, people are now aware of the fire safety rating of a building and will be using less flammable cladding on the exterior.

To then line all the halls of the interior with petrochemical products just destroys the building's safety and environmental credibility. So wool carpets remain a logical choice.

We just need more offices, hotels and homes being built around the globe and, as we keep being told by developers, construction means jobs. So there is sure to be plenty of stimulus activity directed to this sector.

The story Bumpy ride for wool may continue as trade goes into annual three-week break first appeared on Farm Online.

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