COVID-19 causes carnage at Aussie wool auctions

COVID-19 causes carnage at Aussie wool auctions

Opinion
The signals coming back up the pipeline for those that want to listen are clear that Chinese exports have stopped.

The signals coming back up the pipeline for those that want to listen are clear that Chinese exports have stopped.

Aa

We saw a big slap in the face for the wool market last week as the impacts of COVID-19 continue to reverberate around the globe.

Aa

Opinion

We saw a big slap in the face for the wool market last week as the impacts of COVID-19 continue to reverberate around the globe.

Most pundits thought the market was initially going to be OK, then as the bad news piled up from the US and Europe people were asking the question if we, as an industry should still be operating.

Chinese mills are operating and need to be fed, sheep need to be shorn and so wool needs to be sold.

But Chinese mills have been trying to get everybody's attention to tell them orders have been cancelled or delayed from nearly every export destination they have, so they were not going to need as much wool as they thought in coming weeks.

Auction volumes could have adjusted to bear this in mind and slow down the volume being put into the mouth of the pipeline.

Unfortunately, the great minds collectively or more likely individually making decisions, were presumably only looking to their own self-interest and rostered quantities are actually increasing at a time when the customers are clearly saying we should ease up.

One salesman from a high-quality fabric manufacturer in China was heard to comment last week that he had nothing to do except sit in his office.

All of his export markets for woollen fabric in Italy, France, UK, US and even Australia had temporarily shut.

Particularly in Europe and America people in the textile/retail trade have bunkered down and obviously do not want to talk about contingencies or reworked delivery schedules - they have just slammed the door and isolated from the world.

So, the signals coming back up the pipeline for those that want to listen are clear that Chinese exports have stopped.

It is temporary, we hope, but it is almost absolute with very little going out the door.

The numbers are quite simple - China takes 75 per cent of the Australian clip, perhaps more with Argentina and the Cape out of action. About 60pc of that is consumed domestically, with the remainder exported in some form.

So, 30pc of a normal week's volume suddenly has nowhere to go.

Temporary, but just not going anywhere at the moment.

India closed, Italy closed, and Czech also closed, so quickly we can see that in total 50pc of Australian wool exports have to halt at least until the lockdowns are lifted.

However, in the eyes of customers overseas, in scenes reminiscent of the belligerence of the old floor price days, the Australian wool industry actually increased the volume of wool on offer last week, and next week as well.

And then in order to supposedly clear the backlog that has been hanging around since the Talman recess, another sale has also been rostered for week 42 in what was going to be the traditional Easter recess.

With nobody able to travel much, the backlog sitting there perhaps three small sales instead of two larger ones would be better for everyone.

A perfectly sensible rationale until the same selfish and stupid organisations saw it as an opportunity to fill up sale days to the maximum again and further choke the pipeline.

Hence the slap in the face last week, which saw the market lose between $1 and $2 a kilogram with no type immune to the carnage.

Some of the large processors continued to buy as they still have machines to fill, but also probably to try to stem the flow and limit the damage.

In a relatively small industry where ultimately everyone is connected, a ripple at the front end can cause major waves further along the pipeline.

Every person right through the chain up to and including those in retail saw 10pc wiped off the value of their inventory.

The wool industry is quickly undoing a lot of the good work which has been done over the past decade to make Merino a fibre of choice.

Whether a smaller offering would have provided a different result may never be known, and growers presumably did not want to sell anyway as around 50pc of the offering was passed in.

But in the modern world of technology and communication, the wool industry in Australia should have a better grasp on what is really happening at a customer level.

Having both the flexibility and procedures to not be manipulated, but react when it needs to is the challenge.

But simply shoving more wool down an already congested pipeline, screwing the financial position of downstream customers in the process will ultimately only make the downturn deeper and last longer.

The feeling of resentment and abandonment from customers overseas is prevalent and real.

The current situation demands flexibility and cooperation to get through this indefinite period of turmoil.

Doing so will limit the casualties, and shorten the timeline of recovery.

There is going to be light at the end of the tunnel, and people are still buying, trading and processing wool while the battle against COVID-19 rages on.

Some European mills, more so in the east than the west, are still operating at a decent clip.

China does have a huge domestic market, and once they have adjusted their raw material appetite to only service these customers for now, we will get back on track.

After we have crossed the bridge, as ScoMo promises us we will, the world will be different, but people will still need to wear clothes and they will quite possibly have a different value proposition when making a purchase.

People everywhere complain about the panicky shoppers hoarding toilet paper.

Growers desperately flogging wool into a market that doesn't want it is arguably the same thing.

The market will revive if everyone steps back and gives it a little room for air.

Merino wool is still going to be a fantastic, natural, sustainable ethical fibre after all this other stuff goes away, and probably even more in demand for its health benefits.

The story COVID-19 causes carnage at Aussie wool auctions first appeared on Farm Online.

Aa

From the front page

Sponsored by