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CheerFarmers

Farmers cheer record wool prices

Farmers cheer record wool prices

by

Sarah Turner

Australia’s wool farmers are hopeful record ¬†wool prices¬†will provide some protection from the heartbreaking cycles of boom and bust that have traditionally been their lot.

The benchmark Eastern Wool Indicator crossed over the $20 a kilo mark for the first time recently and continues to advance as supply and demand trends converge into a winning combination for wool. In late 2012 wool fetched just over $10 a kilo, and just $13 as recently as two years ago.

Tom McGuiness, who farms at Bigga on the New South Wales tablelands, says a strong wool price makes a huge difference to his bottom line. The current price spike comes after years of tough conditions for sheep farmers, Mr McGuiness says, as low commodity prices and unfavourable conditions have made the going hard.

Despite the welcome move higher in wool prices, many farmers continue to struggle with a lack of rain. The period from April to June this year was the fourth-driest since Bureau of Meteorology records started in 1900.

Wool price

Wool price

“We are seeing great prices but we’re seeing some of the worst seasonal conditions,” Mr McGuiness says.

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Higher prices mean that farmers can afford to buy feed for their sheep should the land prove too dry to provide. Higher wool prices also make it economically viable to hold onto their sheep through tough times.

“Normally we see a lot of stock being sent to slaughter and the number of animals drop and the market really falls away. But because people are trying to maintain numbers by feeding, the price has been maintained. We haven’t really seen that before,” according to Mr McGuiness.

A ramp-up in demand from luxury goods companies in the Northern Hemisphere and an emerging desire for technical wool fabrics from the rise of sports wear as leisure wear are some of the factors pushing wool prices higher,” Stuart McCullough, chief executive of industry body Australian Wool Innovation, says.

“Like any rising commodity price, it’s either driven by supply or demand and sometimes both,” Mr McCullough says. “There’s not much happening on the supply side but lots happening on the demand side.”

Changing consumer behaviour is another factor, he says. Younger, ethical consumers are rejecting some of the “fast-fashion” trends of previous years and turning to quality fabrics.

Demand for fine wool appears to be a big driver of the price, says Dr Andrew Stoeckel, visiting fellow at the Australian National University, noting that the price of high-grade 17 micron wool has doubled over the past three years.

Fine wool is difficult to produce and is a niche product used in high-end products such as suits. It has a very strong competitive edge over other fabrics for its drape and flexibility, he says, with Australia one of the only countries able to supply this wool overseas.

Around 90 per cent of the wool used to make apparel is sourced from Australia, according to AWI’s Mr McCullough.

According to Gunning wool grower Charles Knight, “competition is fierce” from global fabric processors for the limited supply of Australian wool on the market with sheep numbers at historically low levels and exhausted wool stocks.

The price spike for wool neatly coincides with another milestone for the wool industry – 50 years of wool trade with China.

Australian wool exports to China have soared from less than 10 million kilos before the 1980s to 271 million kilos in the 2018 financial year, according to Australian Wool Innovation.

Unsurprisingly, demand from China is also playing its part in buoying prices.

“We are seeing really strong processing demand from China,” says Rabobank commodity analyst Georgia Twomey. “Processors are buying in a rising market to fill existing orders.”

“Around 50 per cent of wool shipped to China stays in China. That market has grown and there are more affluent consumers with the ability to buy wool products,” she says.

Australia is the top wool exporter in the world and wool is the country’s fourth biggest export, worth about $4 billion a year. Overall, wool commands around 1 per cent of the world textile market.

There are risks. America and China are at loggerheads over trade at the moment, with economists concerned that the tensions could eventually filter through to slowing global trade.

Opaque pricing in China is another factor that has Rabobank concerned about potential demand trends.

“We don’t really have the transparency to really understand the drivers and security of demand. That’s a risk factor for price,” Ms Twomey says.

On the supply side, the picture is one of disappearing sheep.

The number of shorn sheep has fallen dramatically since the early 1990s, down from 180.9 million in 1991-92 to a forecast of around 73 million for the 2018 financial year, according to AWI. Shorn wool production dropped to a forecast 340 million kilos for the fiscal 2018, from 801 million kilos in fiscal 1992.

“Wool supply is not strong. We are at close to 70-year lows,” said Rabobank’s Georgia Twomey. “There’s not much sitting in farms or in broker sheds.”

“There are dry conditions in most regions and a decline in production is expected next year so there won’t more supply coming onto the market,” Ms Twomey added.

While lack of supply is a factor underpinning the price, it raises questions about the sustainability of the commodity’s recent climb.

Wool may get so expensive that other fibres may become more competitive for clothing manufacturers.

“There’s a question mark around price influencing downstream demand,” says Ms Twomey.

Additionally, more farmers may decide that the wool business is now attractive enough to enter, so increasing supply.

But Mr McGuiness argues that the industry needs to attract more people to have a future.

“The younger generation were leaving [wool farming] as they didn’t see the opportunity in it,” he says. “There’s just more opportunity now. There’s been a big change over the past five years.”

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