Category: Sheep

There was no sign of confidence in the wool market this week. Rostered bales were withdrawn left right and centre and much of those that made the sale were passed in. With another week of US-China tariff announcements and severe price declines, uncertainty is at an all-time high. 

The Eastern Market Indicator (EMI) fell 122 cents for the week to 1,375 cents. In the last four weeks the EMI has fallen 22% to reach levels not seen since December 2016. The Au$ dropped to US $0.673 at the weeks close. The EMI in US$ terms fell 90 cents to 925 cents (Table 1). A low not seen in over three years in foreign terms.

Fremantle had some catching up to do after a week of no sales. The Western Market Indicator (WMI) lost 182 cents to finish on 1,416 cents.

Auctions saw no sign of any real buyer interest across all types. Despite the magnitude of the falls we have seen over such a short time frame there has been no sense of a base. The timing of the current fall in prices continues to match up the downturn that occurred in 2011.

Most microns suffered losses in the range of 100 to 170 cents. Crossbred wools were the least affected, holding ground with minor falls of 5 cents for 30-32 micron wool and 10 to 30 cents. The Merino Cardings Indicators dropped 90 to 135 cents in the east and a whopping 200 cents, with room for it to fall further still to the 780 to 800 cent range.

A total of 26,420 bales were offered for sale for the week but  34.8% Passed In at auction. This meant just 17,221 bales cleared to the trade. For the season to date we’ve seen 64,408 fewer bales sold than the same period in 2018-19.

The dollar value for the week was only $26.12 million, for a combined value so far this season of $267 million.

The week ahead

It’s a concern when high pass in rates, limited supply and a softer Australian dollar still can’t draw out any significant buyer interest. Another announcement last week of increasing tariffs by the US on Chinese imports appears to have been the overriding driver. Further US-China trade negotiations are scheduled for September and will no doubt impact the confidence of Chinese processors moving forward.

Across the three selling centres, 29,061 bales are rostered for sale next week. 32,641 bales and 35,215 bales are scheduled for the weeks following.

While the auction market sings a Tom Petty tune, the interest and activity in forwards is flooding in, with nearly 30 trades this week as growers look to lock in.

In 19 Micron wool, eleven trades were deal this week. For September, trades agreed between 1,655¢ and 1,665¢. November and December saw agreements between 1,640¢ and 1,660¢ while for January and February of next year, trades were dealt at 1,610¢.

In 21 Micron wool, 17 trades were dealt this week. For September, trades agreed at 1,620¢ while for October we saw agreements between 1,620¢ and 1,625¢. November and December saw trades dealt at 1,600¢ while for January 2019, trades agreed at 1,570¢.

In 28 Micron wool, 1 trade was dealt, agreeing at 830¢ for September.

If falls in physical prices continue, we’re likely to see more growers locking in prices with Eddie, but just like the show, we’ll have to wait til after the break to see the results.

The severe price dive of last weeks market thankfully eased this week. While Merino categories still experienced declines, producers can take some relief knowing that the “emergency” status seems to have been called off for now.

The Eastern Market Indicator fell 16 cents for the week to 1,497 cents. The Au$ saw nearly no change on the week, sitting at US $0.678 at the weeks close. The EMI in US$ terms fell 11 cents to 1,015 cents (Table 1).

AWEX report that better style wools with good additional measurements attracted strong competition and held their ground. However, lack of demand for lesser style wools dragged the market down. The Crossbred sector provided the only positives, gaining 25 to 40 cents.

26,492 bales were offered at Sydney and Melbourne, with no sales occurring in Fremantle. With the shock factor over, sellers were more accepting of this week’s prices and 16.1% of the offering was passed in. This saw 22,216 bales cleared to the trade. For the season to date we’ve seen 46,628 fewer bales sold than the same period in 2018-19.

The dollar value for the week was $36.99 million, for a combined value so far this season of $241 million.

The week ahead

The mix of market sentiment from brokers hopeful for a bounce to exporters thinking the market can weaken further provides little indication of what we can expect in the coming weeks. Although to look at the market from a technical perspective, prices appear to be at their support levels in foreign buyer terms.

33,046 bales are rostered for sale next week, with sales resuming in Fremantle and a designated superfine sale in Sydney. In the weeks following, 36,025 and 33,766 bales are expected to come to sale.

It seems no coincidence that when the auction market began freefalling, no forwards were traded. This week, interest in forwards has begun to pique again, albeit centralized around the most popular MPGs.

In 19 Micron wool, four trades were deal this week. For September, one trade agreed at 1,680¢. For October, one trade agreed at 1,665¢ while for November one trade agreed at 1,680¢. One trade was dealt for February of next year and agreed at 1,750¢.

In 20 Micron wool, one trade was dealt and agreed at 1,645¢ for October.

In 21 Micron wool, five trades were dealt, four of these in September agreeing between 1,660¢ and 1,680¢. One trade was dealt for November and agreed at 1,650¢.

As with the auction market, sentiment seems mixed, but there does seem to be some confidence in slightly lower prices in the short term, with some hope for a rally heading into 2020.

Dive, crash and plunge are the headlines strapped to this weeks wool market which saw the largest correction in percentage terms in the last eight years. In absolute price terms, it was the largest in the last 16 years. That being said, with the Eastern Market Indicator currently at 1,513 cents, prices are still higher than the previous two peaks.

The EMI lost 112 cents on the opening day and a further 52 cents on Thursday, for a total 163 cent drop. The Western Market Indicator (WMI) didn’t escape the deluge, giving up 162 cents across the two days of selling to close at 1,598 cents. The AUD actually lifted which sheltered some of the loss in US terms to put the EMI at 1,026 US cents.

All microns and categories felt the fall. 19.5 to 21 micron lost around 200 to 210 cents on the week in all selling centres. Merino cardings were the least scathed of all categories, dropping between 10 and 50 cents.

Since the market started to turn from its peak last year, the EMI has dropped 26%. Although the speed of this fall has been significant, we have seen larger corrections before. In 2011 the market fell 33% in just over a year, and before that, the largest correction was from 2003 to the end of 2005 where it fell 47%, but in absolute prices that was just 569 cents.

When looking at the 19.5 and 21 micron in USD terms, this downward cycle has been very similar to the fall in 2011-2012. During that period the market found a base in the second half of August after strong sell-offs.

37,379 bales were offered at Sydney, Melbourne & Fremantle. As could be expected growers weren’t happy with the falling market and passed in a huge 35.8% of the offering. According to AWEX, this was the highest pass in rate since 2003. This meant that just 23,993 bales were cleared to the trade, 5,648 fewer than last week.

The dollar value for the week was just $39.63 million, for a combined value so far this season of $203.85 billion.

No forwards contracts traded this week.

The week ahead

The uncertainty in global trade has well and truly filtered through to uncertainty in the wool game. Market dynamics become less predictable, with normal supply and price behaviour often lost in the process.

However, the speed and scale of this correction have moved the market towards levels that would be considered good value in foreign terms. This should see some support return to the market.

Next week 33,969 bales are rostered for sale in just Sydney and Melbourne. 34,705 and 37,465 bales are currently forecast for the subsequent weeks.

Wool prices are crashing, and while still historically strong, yesterday hitting one and a half and two and a half year lows for the 19 and 21MPG’s respectively. The wether flock was already falling, here we take a look at how lower wool and strong sheepmeat prices might see further declines in wether flocks.

The Australian Bureau of Statistics (ABS) flock numbers report total adult sheep numbers and the number of breeding ewes. By deducting the number of breeding ewes from total sheep we get ‘Sheep other than Ewes’. While this includes Rams, most of them are wethers.

Figure 1 shows the decline in ‘Sheep other than Ewes’, with the new low hit in June 2018 of 8.7 million head. It’s not just a function of the declining flock, with the proportion of adult sheep falling from 22% to 18% over the last five years.

Strong wool prices were threatening to see the wether flock steady or grow when seasonal conditions allowed. But the latest fall in wool prices, combined with strong sheepmeat prices, might see wether numbers continue to decline.

We have a basic gross margin per dry sheep equivalent (DSE) calculation for Merino Ewes and Wethers, and it shows the spread is growing. The assumptions are a 1 DSE wether cutting 5kgs of 19 micron wool. The ewe gross margin is more complicated, 4.5kgs of 19 micron wool, producing 0.7 lambs at 12.6kgs cwt.  The ewe averages 1.5 DSE over a year.

Figure 2 shows that the latest move in the wool market has wiped $20 per head off the gross margin for wethers since the start of the year and this time last year. The Merino Ewe gross margin per DSE is down $10 on this time last year, and very close to that of the start of the year.

Composite ewes are another alternative to Merino Wethers, and Ewes for that matter.  We can run a gross margin per DSE calculation for them too. Production assumptions are 4kgs of 32 micron wool, 1.25 lambs at 15.4kgs cwt (35kg lwt) and a DSE rating of 2.

The latest fall in wool prices and strong lamb prices has composite ewes, back at the top of the table, but only marginally, making $3 more per DSE.

What does this mean?

Despite a lower cost of production, it’s hard to see the wether flock growing with such a divide in the value of outputs. Wether gross margins per DSE are now further behind Merino and Composite Ewes than they have been at any time over the last ten years.

With strong sheepmeat prices unlikely to go away and plenty of uncertainty in wool markets, there might be more wethers headed to the market once they are shorn this year. We can expect a new low for ‘Sheep other than Ewes’ in the coming year, both in absolute numbers and as a proportion of the flock.

Key Points

• The wether and ram flock hit a new low in June 2018, but strong wool prices might have propped the flock up.
• Expect further declines in wether flocks, as returns are at 10 year lows in relative terms.

The wool market resumed after the winter recess selling in all three centres but it was an opening that many feared. Demand was negatively affected by the global uncertainty focused on the US/China trade dispute.

Most buyers would have called on their northern hemisphere customers over the break, and clearly the message they received was adverse for prices.

The Eastern Market Indicator (EMI) told the story, losing 31 cents on the opening day and a further 47 cents on Thursday, while the Western Market Indicator (WMI) gave up 134 cents across the two days of selling to close at 1,676 cents. With the significant drop in the AUD over the week, this put the EMI in US terms at 1,135 cents.

It was only the Cardings sector that posted positive results, with falls of 100 cents plus not uncommon across the MPG categories.

Added to the negative sentiment was the national pass-in rate, 25.8% on day 1 followed by 31.8% on Thursday. In fact, Fremantle auctions passed-in more than half of the wool growers offered for the week.

While this result was not entirely unexpected, it still provided a shock to the market. It also reinforced the maxim that reduced supply may lift prices in the short term if buyers are “squeezed”, but in the end, it is demand that will sustain a market.

The conclusion for now is that buyers are lacking the incentive to purchase, with stocks at mills mounting as global consumer confidence wanes.

41,543 bales were offered for sale across the three selling centres. However, with the pass in rate of 25.8% just 29,641 bales were sold. While the year on year offering for this week was up by 7,774 bales, the combined offering this season is 27,533 bales less than the first three weeks last season.

The dollar value for the week was $51.06 million, for a combined value so far this season of $164.22 billion.

The week ahead

While the correction of this week on the surface should attract demand, the magnitude of the falls could well induce buyers to wait it out to see where this market settles. It is a brave commentator who would call the bottom of the market, so we take a “wait & see” approach.