Bets now on how long market surge can last
THE previous week may have been slow and steady, but last week on the wool market was anything but.
From the opening prices rose sharply and didn’t stop until the market had climbed 64 cents by the end of the week. Many Merino categories were notching up a century of gains while finer crossbreds rose by 70c to 80c, Merino skirtings added 40c and carding wools were unchanged.
Overall the market registered a rise of 4 per cent to go along with the 2 per cent lift the week before.
However, the performance of the local market was dwarfed by that in South Africa, which returned fter a twomonth recess and jumped by a massive 18 per cent.
Many are now asking if the dramatic rise can be sustained or if the wool industry will live up to its volatile reputation and fall just as quickly.
Looking back through the record books, on most measures we have eclipsed all Merino prices since 1989. In US currency terms last week’s price is the highest since 2012, while the vagaries of the currency markets mean that for European customers the Eastern Market Indicator was actually higher earlier this year.
So although we are seeing long-term highs here in Australia, customers overseas have seen higher levels in more recent times – not to say that these prices will not have a dampening effect on demand.
Some customers are already talking about their customers being squeezed out of wool. However, while some apparel types such as uniforms and the like will be feeling the pinch, the most damaging aspect is the speed of the price increase.
When a market jumps 6 or more per cent in two weeks people are bound to get caught on the wrong side and losses always seem bigger than gains.
From a technical perspective there is potential for the market to rise by US$1 before making a cyclical top, but this could take some months.
Although competing fibres such as cotton and polyester are not moving in the same direction as wool and have the potential to drag wool prices back at some stage, supply of those is large and increasing.
Wool supply, particularly good Merino types, is tight at present and the Australian Wool Production Forecasting Committee is not predicting any increase across Australia for the next 12 months.
The Riemann forward mar- ket is highlighting the strength of the current sentiment with early spring 21-micron futures trading at 1580c and buyers are offering 1510c for early 2018 through to 1450c in June 2018. Quite remarkable given growers and their advisors were satisfied with hedging 21-micron at what was a historical level of 1400c for the 2017 spring not long ago.
Given increasing murmurs from some sections of the trade about unsustainable prices, hedging a month forward at 100c under current prices may yet prove an astute move.
The current environment is attracting attention, with some Europeans reportedly cutting their holidays short to see what is going on and some Chinese early-stage processors reporting good follow-on enquiry.
Fake fur for the Chinese domestic market is still the main driver for consumption of 19.5 to 26.8 micron types and nearly everyone seems to be processing for that purpose. Not all of Australia’s wool is being used for this despite all the trade gossip, with European firms beginning to flex their muscles on the better superfine types.
So the nerves continue for some while others are gleefully processing as fast as they can, and many growers are flat out harvesting their white gold.