Insights August 2023

Commodity Overview

• Wool prices are set to resume a declining trend as auctions recommence from a three-week recess.
• Economic conditions will continue to weigh on the outlook for retail demand while flock growth will drive continued high supply.
• Fine wools have seen larger price declines over the past year while medium wools have remained stable in comparison.

Wool prices are expected to remain under pressure when auctions recommence after the winter recess. Economic indicators continue to point to weak consumer demand for woollen products in key markets of the US, Europe and China. This could see gains in the first two weeks of the 2023/24 season quickly erased. The Eastern Market Indicator (EMI) rose by 4.7 per cent across the first two weeks of July as buyers sought to secure supply ahead of the three-week recess. Despite this rise, the EMI was still 15.1 per cent lower year-on-year. In addition to weaker demand, prices have also been subdued by increased production. Australian wool test volumes were 3.8 per cent higher year-on-year across the 2022/23 season.

Fine wools have seen the greatest decline in price across the past 12 months. At the final Melbourne auction before the recess, 17-micron wool finished 31 per cent lower than a year earlier. This compares to a decline of only 1.6 per cent for 21-micron wool. The greater decline in fine wool prices was the result of both weaker demand and increased production. Fine wool has a greater susceptibility to the impacts of challenging economic conditions for consumers. In addition, the volume of wool tested finer than 19-micron increased by 6.7 per cent in 2022/23. By contrast, there was a 1.4 per cent decline in wool tested between 20-23 micron. Crossbred wool saw the long-term trend of steady decline continue across the last season. Prior to the recess, 28-micron wool in Melbourne was 20.7 per cent lower year-on-year. This decline can also be attributed to increased supply as the 2022/23 season saw five per cent more wool tested above 24-micron.

Wool markets are not expected to receive any relief on the supply-side when auction recommence. A modest rise in the national sheep flock is expected to drive further increases in wool production in the 2023/24 season. The combination of further supply growth, albeit a smaller rise than the previous three seasons, and continued weakness in consumer demand suggest price trends of 2022/23 are set to continue for the time being. On a positive note, a depreciation of the Australian dollar since the latest auctions could aid the market. The Australian dollar has fallen 4.5 per cent since the start of the winter recess.

Source: Australian Wool Exchange