Market Morsel: Springbok backlog
With the second wool auction in South Africa this season scheduled for this week, welcome news in the form of a lifting of the Chinese ban on South African wool was received at the start of the week. There is quite a backlog of South African wool awaiting shipment which is likely to take some months to run down. The health protocols developed by South Africa in 2019, which involves storing wool for certain times at certain temperatures thereby allowing the foot and mouth virus to die before being exported, will be used.
Overall prices at auction continue to drift along in the shadow of a deteriorating economic backdrop which points to weaker rather than stronger demand as this season progresses. Cotton production faces drought issues in the Americas and flood issues in the sub-continent so there may be some support through cotton prices. In addition the floating exchange rate will help insulate local wool prices.
The Australian merino wool supply should increase gradually this season, with slaughter rates still quite low, helping production recover from the 2017-2019 drought. There are no great changes forecast for wool production in Argentina or Uruguay.
While the best fine merino lots are being sought out and paid high price levels, prices for lots with some form of fault (be it high vegetable matter or some sort of colour issue) are quite variable. Consequently there is a wide range of prices being paid for fine wool. In the short term 2600 cents looks to be a key support level for the 17 MPG.
The return of South African wool to the supply chain will help boost the supply of 18-21 micron short staple (60 mm the main South African staple length) wool, back to normal levels. It will also boost the supply of RWS accredited wool (some 45% of the merino wool offered in South Africa this week was RWS) for which the supply chain will be thankful.
In US dollar terms the 21 MPG continues to drift along around US900 cents, a support level. In US dollar percentile terms and in relation to cotton the 21 MPG is quite cheap, which implies the downside risk for these categories is probably small, certainly far smaller than for the fine merinos.
The crossbred market returned to normal this week, with minimal (92 farm bales) volumes of RWS accredited wool sold. Prices continue to drift along at low levels with little demand coming out of China for these micron categories.