Robust returns for wool clips

Wool's year in review


Sheep
Australia's wool clip hasn't looked so good in a long time. As long as the demand is there, experts say the price will remain stable.

Australia's wool clip hasn't looked so good in a long time. As long as the demand is there, experts say the price will remain stable.

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Australian wool growers are enjoying receiving some of the best clip returns they have seen in decades.

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Setting the scene for a stellar Australian Sheep and Wool Show (ASWS) this year is Australia’s jubilant wool market.

Over the last 12 months Australian wool prices have continued to rise to unprecedented levels. 

The once thought impossible happened at the end of May when wool hit $20 kilogram with the Australian Wool Exchange (AWEX) eastern market indicator (EMI) finishing on 2027 cents per kilogram, clean.

To give perspective of the growth, week 52 at the end of June 2017, 2017, the EMI closed at 1507c/kg. This year, at the time of writing in week 50, it closed at 2021c/kg - a robust 514c/kg higher in almost 12 months. 

To take a closer look at these figures throughout the year, in August 2017, week seven, the EMI charged to 1614c/kg.

Prices declined through the spring flush until the last sale in October 2017 when it gained momentum again. The AWEX EMI closed at 1578c/kg at the end of October. By December the EMI broke again for the 12th time this season, closing at 1760ac. 

In May 2018 it started to rise with more of a frenzy, and the strongest demand for Merino wool  at Australian wool auctions was seen. 

So what is driving the demand? 

One of the key drivers in the wool market is the insatiable demand coming out of China that currently purchase 80 per cent of Australia’s wool clip, half of which is consumed domestically. 

Market intelligence expert, Scott Carmody, said China’s appetite for wool at the moment is insatiable.

“They need our raw materials to keep their machines running,” Mr Carmody said.

“If they don’t buy our product, then they don’t have the chance to make money. So where we go from here, that is their determination. 

“They’re driving the market and they are driving it to a price until they see a resistance at retail.” 

He said we are now seeing seeing six to eight major manufacturers and buyers of Australian wool in China and he said they are going from strength to strength. 

“As they go on they will determine where this market peaks,” Mr Carmody said.  

Australian Wool Innovation (AWI) CEO Stuart McCullough said with the rapid pace wool rose at the end of May, settling into a bandwidth that it bounces in for a while wouldn’t be a bad thing. 

“That gives the processors and consumers of the world a bit of time to digest these sort or price levels and then moves on again,” he said. 

And that it did. In week 49 there was a brief respite after its groundbreaking level with the EMI dropping 16c.

But it bounced back into positive territory the following week and recorded overall gains across the board again. 

The usual pattern we see during this time of the year sees a dip in volumes followed by the expected spring flush.  

But Mr Carmody said all the signs are pointing to the spring flush not being as big has it has been in previous years.

Apart from people selling wool to make the most of the high prices, producers have been forced to offloaded stock earlier than anticipated. 

“A lot of sheep producers have made the decision to offloaded stock early based on the current dry season,” Mr Carmody said.

“People are only retaining the core Merino ewe portion. Excess sheep, older ewes or wethers, they are just not getting carried through. I think we are seeing a bit of wool in the market at the moment that is normally the spring flush.”

He said even if the sheep numbers are the same, the fleece weights are going to be lower. 

“They are not going to cut the weight per head that we were expecting six to 12 months ago,” he said. 

AWEX reports that the total season wool value at week 50 was $3.3 billion. 

According to Mr Carmody the bottom line is that the world’s consumers, those who ultimately set the price for wool at the cash register, are willing to pay a premium for Merino wool.

“Given what we know domestically about constrained wool production, supply cannot lift significantly in the short to medium term,” he said.  

“If demand can stay relatively stable into the short term then so can prices.”

The story Robust returns for wool clips first appeared on Farm Online.

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