Market Morsel: Steady as she goes
While merino prices have steadied, continuing to trade near recent levels, volumes of wool offered and sold continue to rise year on year. As a consequence the dollar value of merino wool sold at auction compared to year ago levels has risen in recent months well in advance of price.
There is an element of timing in this comparison as a year ago uncertainty about the effect of the pandemic is acute with volumes sold and price falling heavily. However the recovery from drought in eastern Australia continues, so wool volumes are rising by 10-20%.
Grower stocks or greasy wool are being maintained, with some turnover, so the extra production is flowing into auction and in the main being sold. The encouraging thing is that gross wool sales at auction look like being around 1.4 billion dollars this season, a slight recovery from the AUD1.3 billion of last season which was the lowest since 2008-9, with plenty of scope for the supply chain to increase expenditure in coming seasons towards the 2 billion dollar seasonal average seen between 2011 and 2019.
Forward bidding interest for 17 micron continues, extending out to 2022. The supply chain will spend around AUD$620 million on 16-18 micron wool this season, which is about standard for the past decade with the exception of the 2017-18 and 2018-9 seasons. Low production is likely to maintain price but not push it a lot higher, unless the main merino market rises.
There were reports of some new business late this week which augurs well for sales next week. The market is doing nicely in absorbing the increased production, although this does mean steady prices. Other apparel prices are steady too, so in one sense the merino market is, as usual, following the general lead of the combined apparel fibre markets.
Vegetable matter continues increase in the eastern clip (not so in the west which will be of benefit for Fremantle sold wool) which is normal as the seasonal peak in vegetable fault tends to be around August. This means that exporters will continue to increase discounts for fault in wool, especially in the broader merino microns categories where demand is not quite as strong.
The strength reported in New Zealand crossbred prices early in 2021 looks to have run its course with monthly export prices flat for the New Zealand crossbred clip. The 28 MPG has fallen back to be a low 0.37 of the 21 MPG, so there appears to be minimal downside unless the merino prices fall. The wide gap in price to broad merino prices holds for 26 through 34 micron.