The wool market plummeted last week in the season's first sale after a winter recess.
While the fall wasn't totally unexpected, with the market finishing on a gloomy note in July, the significant drop of between 50 and 70 cents a kilogram clean, surprised everybody.
The Eastern Market Indicator (EMI) fell 31c/kg a kilogram on the opening day of the sales and dropped another 36c/kg over the following two days to finish the week at 995c/kg.
The story was much the same in WA with the sales opening on Wednesday at 1054c/kg only to topple 49c for the day followed by a further seven cents on Thursday to close the week at 998c/kg.
A total of 50,598 bales were on offer with 39,598 sold.
The fall was disappointing but according to Elders wool manager Danny Burkett, things weren't all bad.
He said it was a positive sign that after the initial fall on the opening day, buyers were happy to continue to trade at that level for the rest of the week.
"Another positive is Viterra was reasonably absent from the market," Mr Burkett said.
"Viterra has led the wool market for six to 12 months and it was very quiet in the auction, which could be for any number of reasons.
"But if we can have a market that maintains about 1100c/kg clean without the largest buyer in the mix then it is a positive sign."
Although industry comment was that the wool pipeline was empty and the Chinese were running down stocks, which would force it to come back into the market, Mr Burkett said the picture wasn't quite so clear.
He said the Chinese had shortened the wool pipeline in the last five years and the time taken to buy wool, have it dumped, shipped and processed was much quicker now than it was in the past.
"While it is a positive sign there is little wool in the pipeline, it is just not as strong a signal as it has been in the past," Mr Burkett said.
"There are two schools of thought operating in the industry at the moment, the first, that wool would continue to trade around current levels, and the second, another possible downside of 50c/kg clean.
"But this week's sales will tell a better story.
"It was a big sale with more than 50,000 bales sold and very little sales done with the Chinese during the recess, so I think this will be the telling week.
"If we can maintain reasonable ground this week, hopefully we will continue to trade around 1100c/kg clean for a 21 micron fleece."
Primaries wool manager Tim Chapman was also shocked with the large downturn in the market.
"We thought it might be between 20 and 30c/kg cheaper coming off the break but not to these levels," he said.
Mr Chapman put the results down to a poor economic outlook coupled with the fact global demand for wool was still not there.
"Whether this is due to Europe's diabolical situation or because there is a money squeeze on is unknown," he said.
He added China was also very quiet and the two big Chinese-buying companies, Queensland Cotton and Viterra, were not on-side during the sale.
"Traditionally August is generally very quiet," he said.
"But as it moves on things begin to pick up."
Mr Chapman said Primaries' reports show the wool pipeline was low in terms of tops and yarns, and extremely low in terms of greasy wool, which was a positive.
He added another factor the market depended on was the retailing side.
"You can't have a bottle neck occurring," Mr Chapman said.
"But if the retail side is not selling wool, that is what happens and everything goes quiet waiting for it to clear through.
"Once that happens wool will start flowing again."
Source: farmonline.com.au
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