Friday, March 29, 2024

Online wool sale blamed for flop

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The country’s largest wool broker is fuming at what it sees as “soft selling” on a new online trading platform it believes is to blame for the disastrous start to the new wool auction season.
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After staging a modest recovery since the start of the year the average price for crossbred wool crashed back to earth with a 9% fall in the first sale of the 2018-19 season at Christchurch on July 19.

It is believed to be the largest drop in prices for the opening sale of the season in two decades.

The market slump caught farmers and brokers by surprise with a massive 45% of the 10,500 bales offered for sale passed in after failing to meet reserve prices – the highest rate in two years. 

Market commentary immediately after the sale cited weak demand from Chinese buyers prepared to buy only enough to fill their immediate needs.

That is understood to relate to fresh environmental concerns surrounding wool scours in China.

However, PGG Wrightson’s South Island sales manager Dave Burridge believes an online trading event two days before by start-up Natural Fibre Exchange (NFX) made a bad situation worse. 

Despite only 750 bales being offered on the NFX platform a close to 100% clearance rate sent the unhelpful signal to overseas buyers that growers of NZ crossbred wool are willing to sell at any price.  

According to NFX’s website full-length crossbred fleece at the July 17 event fetched 303c/kg to 337c/kg.

At Christchurch two days later average prices for wool sold ranged from 341c/kg to 345c/kg at the stronger end.

“When the market is undersold by that much two days before it makes it difficult for us to send a signal that the market has not dropped by that much.”

Burridge said low passings at the NFX event suggested reserves had not been set or had been set too low.

“As an industry we need to not sell at all costs … it signals to manufacturers that we are soft sellers and further undermines the market.”

NFX was launched in May by Wools of NZ with meat companies Alliance Group and Craig Hickson’s Progressive also having taken shareholdings.

The platform is operated by CRA International, which also runs Fonterra’s Global Dairy Trade fortnightly online auction of dairy commodities.  

Hickson, who is also NFX chairman, dismissed as nonsense the idea the July 17 online sale was to blame for the meltdown in prices at the South Island auction two days later.

“NFX in no way sets the market price and neither does the open cry auction. It is the buyers and the sellers that form that.”

Hickson said prices slipped 2c/kg between the July 17 online event and the previous one a fortnight earlier.

The easing in prices reflected a slackening in demand for NZ wool over that period rather than any feature of the online platform, which is merely a mechanism for price discovery.

Clearance rates ranged from nearly 80% to nearly 100% in the five online auctions to date.

Sellers nominate starting prices below which bids cannot be made and which effectively act as a reserve price.

Asked whether the high clearance rates suggested the starting prices on the NFX were being set too low and undermining the wider market Hickson said the price nominated is a matter for sellers.

“It is the difference between discovering the market price on the day versus an aspirational price.

“It is fine for anyone to have in their own mind what they think it is worth and they can set their reserve price accordingly but if they set it above what a buyer is prepared to pay then it will not sell.

“It is quite simple in that respect.”

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