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April 2013

Not what we had in mind?

Fri, 12/04/2013 - 08:33

The first sales back from the Easter recess have taken a bit of a tumble, with indicators taking their biggest falls for quite a while.  On reflection, the market had been quite strong for a long time, and it was only a matter of time before such a drop would occur.   
The reasons for this week's fall would appear simple enough.  Weaker demand in China, already poor demand from India, and virtually no demand from Europe, as European markets continue to be dogged by the effects of financial challenges gripping most of that region.  A consistently highly valued Australian Dollar, (bear in mind, in US Dollar terms, this wool market has never been dearer and exporters will concede that this isn't a problem if the demand is there), and one of the biggest national offerings for the season, followed immediately by another. 
On top of all this, the quality of the offering is declining.  Lower tensile strengths, higher mid break percentages, and in some cases, poorer clip preparation, force the trade to be far more particular in their selection.
A market like this does however give us all the opportunity to take a look at what we might have done differently given our time again.  Anyone delivering wool for sale in the next 3 months would most certainly, if given the chance, "lock in" prices of a month ago.  The opportunity was there at the time, but too few wool growers are taking the opportunity.  This mentality needs to change, otherwise disappointments like we will see over the next few weeks, will come around again and again.  As recently as the week before Easter, it was possible to "lock in" 1200 c/kg for 21 micron wool for April, May and June.  Today, that indicator is 1111 c/kg.  There is little or no forward interest above 1100 c/kg at this time.
It is so easy to lock in a forward price these days.  Our new website has a link to Riemann, where you can see what's on offer, or with the help of your Jemalong rep, you can list a forward sale and wait for the trade to pick it up.  This is known as a GTC (Good Til Cancelled) order.  It will remain valid until we either cancel or change the order.  Since this week's market decline, the forward market has also gone quiet, but this will change at some point.
In June and July, we will be running some short seminars to demonstrate just how simple this is to do.  Tentatively, the dates are 11th June for Forbes, 12th June for Cooma, and 31st July for Tamworth.
The astute wool producer will be picking up the phone when the 21 micron indicator again reaches 1200 c/kg, and looking to "lock in" at least some of his production.

Where is this Market Going?

Tue, 09/04/2013 - 15:39

This is obviously the million dollar question, which usually gets asked more often when the market is softening.  Usually the best way to answer it is to ask a lot of people for their opinion, and then draw your own conclusion.  Every week we speak to exporters about this very topic, and every week there is someone more up beat than others and vice versa.  The three key factors with today's wool market are the available supply, the current demand, and the high value of the dollar.  In US dollar terms, the wool market is really as high as it's ever been, making it quite expensive from a buyers perspective.  Dampening this however is the relatively low supply, and more over, the expected shortage of supply looming late in the season.  Unfortunately, a weaker demand in recent weeks has counteracted this supply shortage.  Add to this the fact that for most of the eastern wool growing areas, the last 10 months have been some of the driest on record, and as a result, the quantity and quality of the clip has declined, producing finer, weaker and higher mid break wool.  These factors, particularly the latter, will also work against the market.  On top of all this, the Chinese market, whilst absorbing it's own domestic production has found it difficult to believe that supply will be less after Easter, when the very first sale back throws 57,000 bales at it, and follows with around 50,000.  So much for a shortage!  Herein lies another factor which hinders the market, and that is an evenness of supply to the market.  Given that a large number of sheep have been shorn earlier than normal, it would follow still that offering sizes must soon decline.  Demand from, and trading conditions in Europe remain poor, and business in India has also weakened.
So what of the answer?  The consensus view this week, and it can either change quickly, or be totally wrong, is that the market will further weaken until the offering sizes also reduce.  Spinners, in China at least, are starting to take delivery of a back log of tops, which should, in theory, open the way for a resumption of intake of greasy wool to be processed.  Assuming the offerings in Australia reduce and stabilize, which they should, the exchange rate remains steady, and the quality of the clip does not slip too much, there should be a return to a bullish market before the end of the season.
Of course, this is just a conclusion, drawn from several opinions.