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Wool

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November 2016

Wool

With the Eastern Market Indicator approaching five-year highs in Australian dollar terms and off the back of good winter and spring rainfall, sentiment among wool growers is positive. To date, favourable seasonal conditions have seen above-average wool cut per head.

After one of the wettest springs on record, pastures are looking excellent. Combined with a very large winter crop and lower feed grain prices, supplementary feed costs will be lower this year.

The Bureau of Meteorology’s Normalised Difference Vegetation Index (NDVI) shows that plant density and greenness is higher than normal for spring especially in central New South Wales, the Yorke and Eyre Peninsulas in South Australia and in Western Australia’s wheat belt. There is a forecast 50% chance that rainfall from November to January will exceed the median for the period across most grazing regions.

Fine wool production for the start of the 2016/17 season is down 7.1% compared to the same period in 2015/16. As a percentage of national production, fine wool has dropped from 46.8% to 45.1%.

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Price

Wool prices continue to trend higher in 2016. The Eastern Market Indicator reached 1331 in late October, the highest price since June 2015. The growth has been driven by fine wools, while crossbred wools (28 micron and above) have been in decline. Improving global demand and flat global wool production should continue to support wool prices.

In relation to wool prices, headwinds to watch include the Australian dollar, which continues to trend gradually higher, and price competitiveness with competing fibres. The wool to cotton price ratio has been trending higher for the past two years.

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Production

Annual Australian shorn wool production has been steady at around 356,000 tonnes per year since 2010. The national wool clip is expected to be lower in 2016/17, down to 325,000 tonnes (Australian Wool Innovation, 2016). Forecast lower wool production reflects lower sheep numbers in Australia as the national flock declined to 68 million head at June 2016 (ABARES, 2016). World wool production is forecast to be similar to last year.

The very wet winter has impacted on the timing of shearing. A large proportion of wool that would have been sold a month ago is just coming onto market now. The condition of stock was impacted by the wet winter and may put a break in some fleeces as well as some lambing losses.

The wet conditions have also created more health issues than normal with foot abscess, lame sheep and increased parasite risk due to wet pastures and soils.

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Demand