That was just one factor behind a savage 25% slump in crossbred wool prices at the first auction since the local lockdown ended at Napier on Thursday.
Exporter Seagard Masurel managing director Peter Whiteman said many foreign buyers were being forced into desperate measures because of shut factories as well as a collapse in demand for the textiles they produced.
“We still sell a lot of wool to Europe and the UK for spinning to make carpets. Those customers are asking us for delays.
“That is natural. Of course we have to do that because they are shut.
“They have bought it six or eight months ago … it is coming due for shipment and they are saying ‘just hold it, we cannot take it at the moment’.”
Even though mills were increasingly able to get back to work in China, NZ’s largest market, many were being forced to continue to sit idle because of a collapse in demand for their products in the West.
“They are saying ‘We have had our rug orders cancelled by Germany’.
“They just do not want the wool and that is where we are having real issues.”
Whiteman said exporters were having to take a “firm line” with some customers but he acknowledged there was a limit to how far they could push for payments from many of them.
“I mean, if you are going broke how can you pay for your wool?
“And some of them will be going broke, that is for sure.”
Peter Crone of Christchurch-based exporter John Marshall & Co used the enforced hiatus in the wool-selling season created by the lockdown to chase customers for payments or confirm letters of credit for contracts already agreed.
Some customers had threatened to walk away from contracts unless offered deferred payments or hefty discounts, or both.
“There is all kinds of things happening at the moment that are pretty serious and are having serious repercussions right now to the industry with respect to prices.”
The situation has sapped exporter demand for wool on the local market.
Bloch & Behrens general manager Palle Petersen said the exporter sat out last Thursday’s North Island sale and was not in a rush to start buying again despite rock bottom prices.
“We will be doing very little buying in the next month until we get a clearer picture.”
Petersen was not confident of a speedy recovery in demand from overseas customers.
“The reality is that a lot of NZ’s crossbred wool ends up in commercial carpets and upholstery, which ends up in airlines, hotels, cruise ships, basically all those areas where we know they are in a bit of trouble.
“It is going to take a long time to get back to anywhere near normal.”
Bloodbath at wool sale
A veteran wool broker says this week’s North Island sale was the most brutal in his nearly four decades in the industry.
Prices dropped by 25% on average, with even steeper declines for lambs wool and second-shear ewe fleece.
That was despite the number of bales put up for sale being capped at just 7000 in an effort to stave off a complete meltdown at the first auction in two months.
Brokers could have put up far more, with 40,000 bales estimated to have arrived at already bulging wool stores during the lockdown period.
The best ewe fleece fell to 210c per kg clean, down from 260c at the last auction on March 19.
Lambs wool and second-shear ewe fleece was even cheaper.
More than a third of bales were passed in after failing to reach reserve prices.
PGG Wrightson’s Dave Burridge said prices were now as low as at any time since the late 1980s when the Wool Board intervened in the market to support prices received by farmers.
The size of last week’s price fall was also unprecedented.
“Certainly as far as crossbred wool, which is predominantly what we grow here in NZ, we have never seen this before.”
Burridge said brokers and exporters planned to meet after each sale till the end of the season to review the number of bales put up for auction.
However storage space was becoming a problem.
“At the moment there is still some capacity left in stores but if brokers were to hold off on further sales there is going to be an issue around how do we carry the surplus.
“There is no easy fix to this and we are hopeful that some of the European markets will open up in weeks not months.”
Despite last week’s bloodbath Burridge said another 7000 bales will be offered at this week’s South Island sale as planned.
