Bets now on how long mar­ket surge can last

Tasmanian Country - - THE STOCK REPORT - Damien White­ley

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.

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