Weekly Market Wrap

Adrian Field Trading Manager

With Adrian Field, Melbourne
Assistant Trading Manager

June 13, 2003

Broad wool continues to close the 'gap'

The eastern market gained another 12 cents per kilogram this week to close at 932c/kg.

Most significant demand was for 22-26 micron wools, where some fleece types were up 40c/kg.

The finer end was not so fortunate, with most wools falling about 20c/kg. There is now little difference in price between 23 and 19.5 micron wool types.

The majority of the clip for auction is now finer than 20 micron, whether it be due to breeding, the drought conditions or a combination of the two.

It was not that long ago (about six years) when the majority of the clip was made up of about 23 micron wools. Most of the wool within the former stockpile was also in the 23 micron range, and I can recall concerns regarding the make-up of the clip's content. It was suggested that there was far too much broad Merino wool making up the overall content. At that stage, prices were very low for 22-26 micron wools - much lower than that of 20 micron types and finer.

Wool is no different to any other commodity and the basic rules of economics apply - the price generated will always relate to levels of supply and demand.

Prices are now reflecting the fact that there is an abundance of 19 micron wool available and a very small amount of 22-26 micron types.

Many importers of Australian wool are very traditional in their requirements, whereby they use a certain type and micron year-in year-out.

For those who use 22-26 micron types, they now have much less to choose from. What happens if they have to compete with other importers to acquire their share? You guessed it - they are forced to pay more.

For those who traditionally import 20 micron and finer, the volume on offer is now far greater, and there does not appear to be any real concern in obtaining annual requirements, hence prices paid are not at the premium they used to be.

As mentioned earlier, the overall supply change has been created by changes in breeding objectives as well as severe drought.

Many large pastoral clips in South Australia and New South Wales have lost massive numbers of stock due to the drought, and most of them are traditional broad Merino clips.

Three to four years ago we experienced a huge swing across to fine wool as prices for broad wool at that stage did not appear sustainable - they had been severely discounted for years. There was a huge push to get into fine wool, and, unfortunately, many people have since suffered.

The finer wool animal has struggled in areas where the larger, broader wool sheep once thrived. Not only has the animal suffered, but the cut per head is less and the quality of the wool is poor.

The larger Merino is also much better for breeding fat lambs and we all know what the lamb market has done.

At the end of the day, it's easy to now lay some blame, but one would have to question the radical promotion and push toward growing fine wool in the traditional broad wool growing areas.

Each producer is ultimately responsible for making a decision on which direction they should take when it comes to growing wool, however the producer's main task is to grow the wool and they should feel reasonably secure knowing that information they receive from the so called 'experts' (who are funded by the grower) is reliable. This was highlighted this week by the expert announcement that "the drought is over'' - what country are they referring to?

Admittedly, there is now less overall demand for wool and the demand that does exist is generally more for finer products/fabrics.

But there will always be a market for broader wools from traditional users.

Hopefully traditional pastoral clips will stick with what works best and we will see the resurgence of the medium and strong wool Merino - providing the drought ends soon.

Although prices may seem low for fine wool, they are not too bad in relation to prices over the past decade. The broad wools have just gained so much and are returning very good money.

We can assume that better style fine wools will begin to improve later in the year, when overall demand for wool requirements starts to pick up.

Demand this week was largely due to the combination of small amounts of fresh business and another small offering

There should not be much change next week, as the volume of wool allocated for sale is again very low - a fraction over 24,000 bales Australia-wide.

Melbourne is holding a one-day sale - for the second time in three weeks.

The market is likely to continue to hover around these levels heading into the selling season break, but, again, its level will depend on volumes allocated for sale, how much new business is done and currency fluctuations.

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