Wool market drifts frustratingly lower

An increase in the value of the Australian dollar brought about mainly by the growing perception of 'higher rates for longer' in the USA has kept the Aussie around the .66 handle for the past week.

The change has not been numerically significant but enough to dampen the enthusiasm of the trade in general.

Higher rates means that the global economy must still endure some pain before interest rates will be cut once again, so the elusive pot of gold at the end of the rainbow remains just out of reach.

Therefore, caution prevails and the market drifts frustratingly lower once again.

The change in USD prices was actually a rise of one cent overall, but in local currency terms the market closed 18 cents lower.

In Euro terms the market only eased by five cents but any sign of red on the market report is enough to keep the nervous nellies of Europe in their burrows.

Superfine and Fine Merino fleece bore the brunt of the market movement as it becomes more and more difficult to find enough orders to service the amount of this wool currently on offer.

Buyers in Fremantle are struggling to find customers for the low yielding wools as most Chinese scouring mills struggle when the yield drops below 60 per cent.

Pieces and bellies and prems had a positive week however and the knitwear sector in general should continue to thrive comparatively.

Superfine premiums are being squeezed further,and with the gap to medium Merino now getting down to three or four dollars some are wondering if they are too cheap.

Crossbred wools also drifted down in local currency terms as did the carding sector.

Production for the upcoming sweater season is beginning to ramp up which will support the shorter wools, but the outlook for longer wool products such as worsted fabric are more uncertain, hence the hesitancy in the auction room.

The Chinese domestic wool clip is being harvested about now, and the wools will gradually make their way into the system, as will Russian and European wools which mostly need to be processed in China given the lack of early-stage processing available anywhere else.

This will add a bit of pressure to the Australian medium Merino, but there are enough orders in the pipeline already from existing uniform orders and new season pre-production to keep a floor in the market-in USD terms at least.

Like everywhere else around the globe, Europeans are desperately hoping for a confidence boost to improve consumer activity for the upcoming autumn/winter season.

Of course everyone is watching the biggest consumer market in the world, USA,where the economic activity has proven very resilient and interest rate cuts are now unlikely to happen until early 2025.

So, the wool market is nervously poised.

Supply is low with less than 40,000 bales per week on offer in Australia, less than 7,000 bales per week in South Africa.

Virtually no greasy stockpile in Australia, and nothing at all in the pipeline.

We just need the demand side to wake up and the industry can kick back into gear very quickly.

It will happen, as it always does.

The industry does have a bright future despite the challenges at present, and perhaps now is a good time to categorise Merino as a noble fibre and not a commodity and tell the world about it.