Insights April 2023

Commodity overview

• Fine wool prices have been heavily discounted after a strong start to the year edging prices closer to their five-year average.
• Wool testing volumes have continued to outpace the growth of the same time last year.

The Australian wool market faced heavy price discounts throughout March. More than 200 cents was wiped from the price of 17 micron wool in what was a difficult month for fine wool prices. All other prices across the Micron Price Guides fell during March with some falling to their lowest price of 2023. Stronger wool types from 19 to 21 micron lost an average of 41 cents. The fall in prices drove the pass-in rate to almost 20 per cent in the third week of March. This was the largest pass-in rate since the market faced significant price discounts in November last year. Offerings did remain strong with an average of almost 45,000 bales per week throughout the month.

The Australian Wool Testing Authority has now tested 6,000 tonnes more wool than the same time last year. This further widens the gap between the last two production years. The largest contributors to this volume growth have been New South Wales, Queensland, and Tasmania with the latter two states not considered to be large wool producers. Australia’s largest wool producing state, Victoria, may be set to outpace last year’s production during April. Dry weather in the southern states has supported the shearing industry allowing growers to keep the wool away. The cost of shed staff and shearers can be expected to cost up to as much as 20 per cent of the value of the fleece for a fine or medium wool sheep. This long-term increase in costs is not being met with the same upside in prices over the same period.

A new report by Australian Wool Innovation has identified the key wool retail markets following the top-making process which largely occurs in China. Imports (in USD terms) in the US, Germany, France, South Korea and Italy were all higher in 2022 than in the pre-COVID era. There was slippage in the demand from Japan and the United Kingdom in the same year which does indicate the impact of economic conditions on the demand for wool products. The impact of global inflation and correspondingly high interest rates is not yet fully evident in consumption data. This is a troubling sign for demand in the wool industry despite the end of China’s COVID lockdown earlier in the year.

Sources: Australian Wool Exchange, Australian Wool Testing Authority