THE month of April has been very kind to the wool industry and last week it finished with another stellar performance.
Despite a weaker US dollar leading to the Australian currency briefly climbing to the US80 cent level again, the wool market maintained its upward momentum.
The AWEX Eastern Market Indicator (EMI) rose by 19 cents a kilogram to 1172c/kg - a level not recorded for the past three years.
In US dollar terms the weekly rise was more significant with a US43c/kg rise.
Although the overall market remains relatively low in US dollars given the variability of the currency markets in recent years, the strength of the current rally was able to override the stronger Australian dollar effect, and after a wobbly start on Wednesday it maintained good progress through until the end of the selling week.
All Merino fleece types recorded positive gains with even the superfine 16.5-micron category in Melbourne gaining 40c/kg during the week and some good interest shown for the few lots of ultrafine wool available.
Medium Merino fleece typically added more than 20c/kg to put the 21-micron wools at the 1250c/kg level, which is only 30c/kg short of a three-year high.
Merino pieces that are predominantly being used in knitwear types at present reacted to the buying frenzy of shorter types by adding as much as 40c/kg.
Carding wools, already somewhat in the stratosphere of recent prices gained a little more, while crossbred wools that are already at record high levels in Australian dollars, encountered resistance as they tried to break through the US dollar ceiling of their trading range and eased a few cents.
However in US dollar terms the crossbred types still managed good increases as supply concerns with a decreasing New Zealand clip filtered around the world.
Reaction from overseas customers last week was rather mixed, as one would expect, with some people happy about the continued rise and others remaining more perplexed.
Those operating in the carding or short combing wool areas continue to record good demand for their product and there is talk of some mills converting longer fleece types to open top by cutting the sliver after combing, such is the appetite for these knitwear types.
Mainstream wool production factories are reporting reasonable demand from domestic Chinese customers as they catch up from a quiet first quarter of the year.
However, almost without exception other markets around the world are baulking at the recent price increases for wool.
This leaves quite a small section of the industry driving the current market, as Chinese mills are finding it difficult to export wooltop and yarn.
Unless this changes shortly, an increase in Chinese stocks of top and yarn will result and force a correction on the auction market.
Government stimulus in China by way of increasing liquidity in the banking sector may be allowing some mills to buy more inputs, but the general talk in the wool trade is still one of a lack of adequate funding for many mills.
The wool industry for the past 100 years has operated on long credit terms, with exporters and top makers in particular often providing payment options of up to six months to allow their clients to buy, process and then sell the product before being obliged to pay for the raw material.
While interest rates globally are at all time lows, the propensity of lending institutions to fund textile operations is certainly restricted.
One or two large Chinese companies have already withdrawn from the wool industry after poor returns and the large global credit insurance companies have a definite aversion to textiles in general.
This means that companies wanting to finance their operations by buying raw material on credit have a tough time finding available finance leading to smaller volume purchases and fewer long-term contracts.
Stock levels remain low in the early stages of the pipeline despite the increased wool production being reported in Australia.
During the first three months of 2015 there has been an eight per cent increase in wools tested by Australian Wool Testing Authority (AWTA) compared to the first three months of 2014.
Improved seasonal conditions in those areas where shearing usually occurs in the first quarter, such as the pastoral division of South Australia and NSW appear to be contributing to this temporary increase.
Given the official forecast of more or less maintaining wool production in Australia for the 2014-15 season a pending supply squeeze is in the minds of many traders and contributing to the current frenetic activity in the sale room.
The global economic outlook continues to oscillate between positive and negative depending on the viewpoint of any particular author, but a general uplift in commodity prices appears to be gathering steam.
The wool industry is often a market leader when it comes to a recovery, or a decline, and hopefully this remains the case in 2015.
Given the time of year however, caution must be paramount in that it is a relatively small section of the industry that is buoyant at present, and the processing season is due to wind down soon.
There may be another week or so left in the current rally, but it would be most unusual for the wool market not to experience a correction during the northern hemisphere summer period.
Bruce McLeish is the wool sales manager for Elders.