Market Morsel: Greenback to the rescue
Further falls in the Australian dollar or perhaps it is better put as further rises in the US dollar helped stabilise merino prices this week, and dragged crossbred prices higher. While the market was stable in Australian dollar terms, merino prices were weaker from the perspective of Chinese and Europeans buyers. Cotton prices continue to trade at very high levels so the apparel fibre backdrop to the greasy wool market(s) remains supportive.
Logistic issues with international shipping and internally in China remain a problem. It is simply difficult to move wool and related documents around the world in an efficient manner. While the cost of shipping has risen, the reliability of shipping has fallen. Despite all of the uncertainties demand continues for greasy wool with new business reported late this week, across a wide range of wool types, which is a good sign for next week.
Prices for fine merino finished the week well down in USD and Euro terms, while stable in Australian dollar terms. It pays to monitor prices in other currencies. By rights the different prices should follow similar trends and cycles albeit at different levels. When they start to move in different directions (as they are now) it warrants close attention.
Vegetable fault has become an issue in the finer merino micron categories in the past month. This will complicate pricing as prices for lots with VM above 2% have an appreciably wider variation than for low VM lots. In the meantime the 19 MPG (based on low VM lots) continues to track sideways with, ranging between 1630 and 1780 cents (roughly).
In US dollar terms the broader merino micron categories are trading at low levels by the standards of the past decade, which the growers in South America will be noticing. Looking forward into next season, the low US dollar price for broad merino points to limited downside price risk for these categories.
The weaker exchange rate fed into higher Australian dollar crossbred prices this week. In US dollar terms crossbred prices are rock bottom (hopefully) so the cheaper Australian dollar produced a 3% rise in the 28 MPG. There seems to be a good chance the Australian dollar will ease further on the back of weaker demand for iron ore out of China.