Article by: Hari Yellina
The tragedy of South African growers, who were forced to cancel their sale owing to a Foot and Mouth Disease (FMD) outbreak, gave the Australian wool market a modest boost last week. China, like the previous FMD outbreak in 2019, imposed an instant embargo on all cloven-hooved animal products from South Africa – but not from Lesotho at this time. South African authorities promptly opted to postpone their wool auction pending additional consultations, which resulted in some orders being shifted to the Australian market. As a result, the Australian market received a much-needed lift on Tuesday, with prices rising by 20 to 25 cents per kilogramme on the first selling day.
The Australian Dollar suddenly soared above US0.75 cents on the second day of the auction in Australia, wiping out much of the previous day’s gains in local currency terms. By the conclusion of the week, the wool market had gained 4c/kg in US Dollar terms but had lost 6c/kg in local currency. The persistent weakness of the Euro prompted European purchasers to spend more, resulting in a 31c/kg increase in wool prices in Euro throughout the week. Poor quality wools, as a result of seasonal conditions, also played a role in the Australian market’s lacklustre performance. Buyers grew increasingly hesitant to purchase these wools because of the unsightly colour and greater vegetable matter content (VM).
The most sought-after Merino breeds are still superfine Merino. However, over the course of the week, pricing for this section did not alter significantly. For the first time, medium Merino fleece varieties gained more than finer types, as purchasers sought value and quality. Buyers avoided the excessive colour and high VM lots, therefore crossbred wools suffered and carding wools eased significantly. As dumping and shipping firms struggle to cope with the current demand, some customers are feeling the sting of wools backed up in the pipeline awaiting shipment. Given that any greasy wool from Australia – or wooltop from China or India – purchased now would only arrive on European shores in mid-June, demand from Europe is obviously diminishing.
Given that their vacation break is often spread over July-August, this is considered too late for the current season and a touch too early for the upcoming season. Many European mills are still dealing with rising energy costs and a persistent water shortage in Italy, making the task of wool processing difficult enough for them to reconsider purchasing more raw material for the “future” 2022-23 season. Mills across Europe, as well as those in Russia and Belarus, are still operational. They are, however, concentrating on the short term, purchasing immediate supply from those who still have any in Europe. Many people will be worried over the next few months as they try to gauge the consumer market’s mood.
If growers decide to self-regulate the market by withdrawing or passing in wools that do not match expectations, the market may be able to make it through the Easter recess relatively unscathed. However, if producers panic and sell anyhow, there might be a lot of red writing on market reports. With the start of the new fiscal year not long away, some growers may decide to take a break and wait for things to calm down globally. This would relieve some of the supply-side pressure and allow some congestion to evaporate. In any case, the wool market’s legendary resiliency should continue, allowing us to kick back and relax for Easter with a bar or two of chocolate.