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Beyond the Bale : December 2017
PRICE RISES DRIVEN BY DEMAND The past six years at Australian wool auctions has seen powerfully increasing price levels (bull run) and is indicative of the strongest of demand signals, particularly more so given the relatively unchanged supply scenario. This situation is perhaps compelling evidence as to why exporters and the majority of manufacturers for the past few years have been operating very much to a “hand to mouth” basis and reticent to lock in forward contracts at “today’s prices or less”. To bet against market trends that have been in place for five or six years for any sort of exposed volumes would simply be called gambling and the modern day trade is first and foremost founded on risk adverse trading behaviour and cautious operational methods. Looking at Figure 1 (right), a price resistance situation has seemingly not been recognisable or predictable in any way, shape or form. Today’s situation within the Australian wool markets is thankfully a positive one, as woolgrowers are enjoying receiving some of the best clip returns they have had in decades. As at the end of the second week of November 2017, the AWEX EMI stood at 1681ac/clean kg and swiftly breached the record levels of 1614ac/clean kg for the week ending AWEX EMI figure. This level was set earlier in this season in August 2017 in Week 7 of the auction series. This represents a year on year increase of up to 30% of the value of Australia’s wool clip. Looking towards the Australian wool supply situation, the volume of all wool tested through AWTA Ltd has been relatively stable over the past six seasons. During that period the tested volume has been revolving around 360 million kgs greasy plus or minus 5%. Early indications at the end of the first quarter of the current season show that production is on the increase once more, with 9.2% additional weight flowing through the test house as compared to the same time period of last year. This follows on from the 5% increase recorded last year to see wool volumes tested go to 357.9 million kgs from the 2015/16 season figure of 340 million kgs. Within the overall supply figures, the breed make-up of the Australian clip has also barely changed. Recent anecdotal accounts of “everyone moved to crossbreds or fat lambs” and that is “why the total wool supply has remained constant” cannot be borne out by any figures of wool being tested through the AWTA Ltd. In fact, the opposite is being evidenced (see Figure 2). The past season has seen the lowest volume of crossbred micron FIGURE 1: WOOL VOLUME V PRICE DURING PAST 6 YEARS Source: AWTA Key Test Data and AWEX - 2017/18* projections only 220,000 240,000 260,000 280,000 300,000 320,000 340,000 360,000 380,000 400,000 200,000 1050 1100 1150 1200 1250 1300 1350 1400 1450 1500 1600 1550 1000 2012/2013 2013/2014 2014/2015 2015/2016 2017/2018* 2016/2017 AWTA Key test data volume VOLUMEINGREASYTONNES-AWTAAWEXEMIINACENTS/CLEANKG AWEX seasonal average EMI price FIGURE 2: 8 YEAR MERINO V CROSSBRED VOLUMES COMPARISON Source: AWTA Key Test Data MERINO 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2015/2016 2016/2017 2014/2015 66049 76265 75353 72694 66899 65698 65658 70641 297830 295658 284077 296947 286669 274230 292127 294840 MERINO %OFAUSTRALIANCLIP Xbds Xbds wools tested for eight years. Last season the crossbred micron wools made up 18% of the Australian wool clip tested compared to 21% back in the years 2010 to 2012. What is clear from these data sets, is that a fundamental shift in demand for Australian wool has been rebuilt into the global textile industry over the better part of the previous decade. In very simple terms, consumers are exercising their discretionary spend on luxury items and that includes wool. The wool markets are sustaining the bull run on price, and this is in tandem with a very stable production scenario. These conditions have led us to a point whereby growers who have stood steadfast to their industry are justifiably and consistently being rewarded for their efforts. As economic conditions are forecast to continue to improve throughout the world, this should assist to enshrine these sorts of price levels into on-farm modelling. MARKET INTELLIGENCE REPORT MARKET INTELLIGENCE 63