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Beyond the Bale : June 2014
VOLUME Australian wool production down 3 per cent in 2013/14, and expected to ease again in 2014/15. The Australian Wool Production Forecasting Committee has revised the shorn wool production forecast for 2013/14 to 340 mkg, 3.4 per cent below the 2012/13 level. This decrease reflects further reductions in shorn sheep numbers and lower fleece weights than previously expected, due to both the continued tough seasonal conditions and high slaughter rates. The Committee's first projection for 2014/15 has been set at 330 mkg, down 2.9 per cent from 2013/14, also a result of the high sheep slaughter rates this season. Given the weather conditions and slaughter rates, it is unsurprising that fine wool has seen a substantial increase in volume, while broader wool has experienced a large decrease. This has created a downward price pressure for fine wool and an upward price pressure for broader wool. World wool production is estimated to fall in 2013/14. Increased production in South Africa, Uruguay and Mongolia were not enough to counter balance the reduction in Australia, New Zealand, Argentina and the UK. Projection for world wool production in 2014/15 remains static. World apparel-wool production declines while interior textile wool production rises. PRICE The Australian wool market continues to show divergence in fine wool and broader wool. The chart above shows percentile in Australian dollar terms using four-year AWEX monthly Eastern Market Indicator (EMI) and a comparison against the previous decade (May 2000-April 2010). From February-April 2014, the monthly EMI averaged at $10.50, tracking at the 35th percentile. The low percentile value (37th) indicates that over the past four years, the monthly EMI recorded a price lower than $10.50 for only 35 per cent of the time. It also means within that period, the monthly EMI recorded a price higher than $10.50 for 65 per cent of the time. On the other hand, Merino Cardings (MC) averaged at $8.03, operating at the 84th percentile. For the same period, 18 micron averaged at a monthly value of $12.44 (24th percentile), 21 micron averaged at $11.60 (44th percentile), and 28 micron averaged at $6.67 (79th percentile). Although the EMI is tracking at the 35th percentile over the last four years, it is at the 96th percentile when compared to the first decade of this century. ECONOMIC OUTLOOK Strong recovery from the US, some concerns around China's domestic financial problems. Global growth slowed in quarter one of 2014, as winter storms hit the US, and large economic reforms got underway in China. The International Monetary Fund (IMF) expects the slowdown to be temporary. The latest World Economic Outlook (WEO) released by the IMF notes a sharp reduction in global risks that might undermine a recovery. IMF also expects a surprisingly large 6 percent fall in oil prices next year and lower inflation rates for most markets; this should see the global economy continue on the recovery path. China plays a crucial role, as it accelerates reforms to curb domestic financial problems. If risks weren't curbed in the next few quarters, the construction and consumer sectors in China would be hurt. This would have a big impact on global growth via China's import demand. Provided China keep a lid on its financial problems the outlook for advanced economies is more secure, with growth lifting to 2.2 per cent this year and 2.3 per cent next year after two years of growth around 1.3 per cent. The driver to this is the strength of the US recovery. The recovery in the EU will be nowhere near as strong, as little has been done to deregulate and improve markets. However, a swing in the Euro area from two years of contraction at -0.6 per cent to growth of 1.2 per cent this year, and 1.5 per cent in 2015 will do a lot to recharge global demand and offset oversupply. Market Intelligence Report 54 June 2014 BEYOND THE BALE EMI $10.50 17um $12.96 18um $12.4 4 19um $11.93 20um $11.6 3 21um $11.6 0 22um $11.47 23um $11.7 3 24um* 25um $8.38 26um $7. 47 28um $6.67 30um $6.31 32um $5.63 MC $8.03 0%102030405060708090100 35 21 24 26 39 44 49 67 33 32 79 83 84 84 96 48 77 78 97 97 98 99 85 80 93 99 97 100 2000 2010 DECADE Average monthly EMI for February-April 2014 relative to (1) four year historical data and (2) the decade 2000-2010 4 YEAR HISTORICAL DATA *Insuficient data