Anxious wait for signs of market improvement after traditional August processing lull

Challenging conditions continue for wool in short-term

Sheep
Analysts are pegging their hopes on signs of a wool market up-tick in the next six to eight weeks, after a traditional August lull in processing.

Analysts are pegging their hopes on signs of a wool market up-tick in the next six to eight weeks, after a traditional August lull in processing.

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Analysts are pegging hopes on signs of a wool market up-tick in September.

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A degree of ugliness returned to the wool market last week, and the currency was again a contributor.

It was not the sole factor, but accounted for almost 2 per cent of the 6 per cent slide in wool prices.

A lack of orders in the current COVID-19 global malaise is creating quite a despondent outlook across the trade.

It can be rectified, but the middle of August is - and always has been - the lull between the processing seasons.

In a typical season, mills would be producing stock, sending out samples for the next season's collections and taking a punt on what orders may be forthcoming.

But in the current environment, retailers are unlikely to answer the phone to talk about next season at this stage - and there is certainly no rush of last-minute orders as we have seen a couple of times in the past few years.

In short, the retail fraternity is totally focused on getting consumers online, or in store, in the coming weeks; selling some product; and surviving - after which, they will turn their attention to next year.

But they definitely don't want to discuss the autumn-winter range for 2021-22 just yet.

There are a few positive signs emerging in the greasy wool market among the doom and gloom.

Reasonable price premiums for superfine and ultrafine types are starting to emerge, and the appetite for the better superfine Merino wools appears to be growing.

No doubt the challenging growing season of 2019-20 has contributed to wools with a broader micron overall, lower tensile strength and higher mid-breaks - brought about by the break in the season.

Lower wool prices are still better than having another year of drought - at least for those who have seen the drought break.

Difficult conditions are persisting across the globe, but some of the more forward-thinking operators are starting to ramp-up activity in a measured way.

The European mills have a much longer history and, due to geographical constraints, need to plan a bit further out.

In some cases, the window of opportunity for them to purchase raw material is also more restricted as well - so the past couple of weeks has seen an increase in activity by some of these buying houses.

Conversely, mills in China are a bit more reticent to poke their heads above the parapet at the moment.

During the massive and rapid evolution of the wool textile industry in China in the past 25 years, it has been relatively plain sailing.

Both by design and good fortune, Chinese mills have had a fairly smooth ride - with government support, labour cost advantages and a growing domestic market all contributing to their development and growth.

The current pandemic-induced crash has stifled opportunities, clogged the supply chain and decimated their cash flow.

Very few early stage processors are currently running at more than 50 per cent capacity, with some of the smaller operations forced to close their doors - at least temporarily.

Given that the number of carding and combing machines around the world - but predominantly in China - is still similar to 1990, when the Australian sheep flock was 186 million head and retail activity certainly a lot better, it is not surprising that some are feeling the pain.

Some rationalisation is no doubt going to occur, particularly as banks and local governments withdraw support.

At the end of the day, however, the problem is not the number of machines, but the lack of demand coming back down the pipeline.

COVID-19 is forcing change on many industries, and different methodologies and business practices will evolve.

Those companies with a mostly, or solely, online selling focus are doing much better than the 'bricks and mortar' operations.

Some online operators are even reporting an increase in activity compared to last year.

New virtual fitting rooms might seem a little far-fetched, but companies such as Gucci are developing this technology for its new range of sneakers.

There is no doubt some things will remain different in the post-COVID-19 world, but for the bulk of sales, production and processing we are looking for a return to 'near-normal' as soon as possible.

As governments across the globe are tending to manage virus outbreaks with contact tracing and limited isolation practices, rather than whole-scale shut-downs, the economic recovery may be able to be sustained.

For almost every gloomy statistic, there is a corresponding upbeat set of data showing that pent-up demand is there - and once released, does actually lead to a recovery in consumer activity.

Daytime temperatures are currently hovering around mid-30°C in most of China, which is not conducive to selling winter garments.

Europe has also been going through quite a hot spell, and the west coast of the US is battling bushfires.

So, retailers are not rushing to fill the shelves just yet with winter clothing.

Until they do - and sell a bit of this - they will not be talking about new orders for next season, which is where we are at from a greasy wool selling perspective.

The next six weeks will obviously be a challenge.

But with only 22,000 bales on offer this week, we should get a fairly good gauge about whether this price level can be sustained through until October - when, hopefully, orders will begin to flow again.

Even with many machines running at only about 50 per cent of capacity, the mills do need a bit of wool shipped. So, there may have been just enough sold to keep things relatively stable in the coming week.

When the wool market will turn upwards again is the million-dollar question.

Auction week 13 - in late September - is often a trigger-point.

So too can be the Chinese National Day holidays, during the first week of October, when new government stimulus can be forthcoming, as well as an up-tick in retail activity.

Hopefully we don't have to wait until after the US election, as that result is far from clear cut at this stage.

Sometime in the next four to six weeks, will see the wool market pick itself up off the floor, shake off the dust and move off into new greener pasture.

The story Anxious wait for signs of market improvement after traditional August processing lull first appeared on Farm Online.

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