Wk 35 02/03/2017. The AWEX EMI sky-rocketed up 51c to close on 1500c, reaching new all-time heights at auction sales in Australia this week. The 40,626 bale offering was keenly pursued by a wide range of buyers seemingly in a frenzy to purchase all types at any costs.

The Merino MPG’s from 18.5-20 all reached new record price levels since 1995; however have some distance to travel before achieving the 1988 level (for those old enough to remember). The market jumped into its bullish trend from the first lot offered and surprisingly, kept that trajectory until Fremantle sold its last lot last night. Whilst Wednesdays’ EMI recorded a 32c rise, the trend on Thursday realised an additional 19c – the icing on the cake really. This fairy tale market has us believing that it won’t end, however history tells us that the antidote for high price is “high price”. At the end of every week our suite of market intelligence sources have asked many questions of, where to from here?

Despite where we are in the market trajectory, the simple fact is that after every price boom, there has been a correction or what some call – a ‘bust’. And whilst I am wearing the crystal ball out for hints of the next week, months or years market level, the fact is that nobody knows where to from here.
We do know the underlying demand is as good as it has been for some time and we also know that supply throughout the pipe-line is pretty thin. For this, clients who would like to protect their current price position, there has never been a better time. Liquidity in the forward market has improved, and we have been able to achieve most forward price requests over the past 5 months.

So, whether you are an optimist (that’s me) or a pessimist (optimists live 7 years longer on average), hedging is what I would recommend for our spring and summer shearers. An important statistic that I have developed is, that after every autumn price spike, the average fall into the following spring is 16%. With the ability to hedge approximately half that discount it seems a “no brainer”. Next week’s offering of 47,500 bales should attract the appropriate completion and a consolidation of these price levels would be a fantastic outcome.

Mike Avery reports: The forward market traded robustly on the back of another positive auction series. Solid trading on Monday and Tuesday pre-empted the auction opening with most Merino categories rising 50 cents and the EMI reaching 1500 cents for the first time.
Most interest from Exporters focuses around the March to July window, but growers were able to gain forward cover into the spring and beyond, as prices in the spot market set new records. The market traded 2 years forward, with February 2019 trading at 1600 for 19.0 micron. Although heavily discounted to spot, this level is in the 90th percentile of historical prices and also where the spot market was trading just prior to the Christmas recess. Exporters remain extremely cautious at these record levels.
Supply and demand balance, AUD/USD ratio, current high volatility and overall risk assessment will factor into decision marking for both buyer and seller as we move into the back half of the season. The market will be looking to off shore confirmation from the continuing rally, but we expect opportunities to avail for both buyer and seller next week. ~ Marty Moses

Market Report 02.03.2017 (PDF)