After a declining trend for the past month, buyer competition for Merino wool returned last week due to exporters scrambling to cover off inventory and the US Dollar (USD) level creating confidence.
The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) gained 31 cents pushing over the 2000 mark again to close at 2023c per kilogram, clean.
In USD terms the indicator moved similarly dearer by 20usc or 1.37pc higher to 1431usc clean/kg.
The targeted zone of interest, according to trade consultant Scott Carmody, was centred around the 21-micron area as that is the production area most heavily hit by destocking and drought.
“In many instances, sale lots across the 20 to 23-micron area were 100 cents dearer than the previous week,” Mr Carmody said.
“The finer wools were not neglected either as the 18 to 18.5 wools became 25 to 50c dearer.”
The latest Australian Wool Testing Authority (AWTA) data for 16-micron and finer volumes have lifted markedly with the rolling 12 month cumulative supply of 16-micron wool and finer rising compared to levels earlier in the year.
Extra wool for these categories is now flowing in from the dry regions in the normally higher rainfall areas of eastern Australia, in particular in NSW.
But will this put a downward pressure on prices?
According to Mecardo market analyst Andrew Woods, the increase in fine Merino fleece volumes will persist through to at least mid 2019, therefore the downward trend on fine wool premiums will persist for the same time.
“An increase in fine Merino volumes has been anticipated due to the dry conditions in eastern sheep regions,” Mr Woods said.
“This is starting to happen in earnest now, as the production from the higher rainfall regions in eastern Australia, which is finer to start with, shows the effect of drought.”
He said year on year, the change in volume tends to be strongly negatively correlated to a change in the premium.
Landmark south east wool manager, Stephen Keys, said due to the lack of feed and water the increased trend of finer wool will continue in the short term, but said there will be no great increase in premiums due to the quality offered.
“The down side of this is because they are more drought affected you will see a lot more tender wools, shorter wools and they will cut less weight,” Mr Keys said.
“We may see an increase of the 16 and 17-micron wools, but I don’t think it is going to create any great premiums.
“The majority of the style of wool we will see will be affected by the season.”
He said if the trend is correct and the fine wool volumes continue to rise, medium wools will continue to be in demand with less better-grown medium type wools on the market.
“Quite often the medium types out of South Australia or western NSW have a lot of vegetable matter in them so any freer types we have we certainly been seeing a premium for those,” he said.
With the wool market still at historically high levels, after the dust settled from last week a lot of medium type wools were not far off their highest point in the last 12 months.
Mr Keys believes the strong demand will continue, but at present financing in the market is difficult for a lot of exporters and processors.
“That generates a little volatility as well, depending on when they have access to credit, which seems to be an issue for some,” he said.
“But between now and the Christmas break, there should be a bit more stability from a finance point of view and that should create some very strong support across the board.”
The Australian Wool Production Forecasting Committee (AWPFC) will meet a month earlier than planned to review its forecast of shorn wool production for 2018/19.
In August, the committee commented that “how the season progresses over the next couple of months will be very important for overall production levels this season.”
The seasonal conditions have remained difficult in many, but not all, of the major wool producing regions, notably in NSW, Queensland and parts of South Australia and Victoria.
The global wool textile industry is keeping a close eye on the wool supply likely to be available in Australia, so the committee has decided that, an earlier, considered assessment to the forecast would provide the updated information to the market.
They will now meet on Wednesday November 14.
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