Insights August 2024

Commodity Overview

• Wool prices are expected to remain subdued and track below average levels when auctions resume following a three-week recess.
• Reduced wool supply in the coming months is not expected to sufficiently offset weak demand leaving currency movements as the primary driver of any changes in wool prices.

Wool markets entered the three-week mid-year recess on a positive note. The Eastern Market Indicator (EMI) rose 17 cents, the second highest weekly gain for the year-to-date. This gain was helped by the Australian dollar falling across the week. However, this represented only a partial recovery following a 63 cent decline over the preceding 5 weeks. At 1,124c/kg, the EMI sat 4.7 per cent lower year-on-year and trailed the five-year average by 12.8 per cent.

Across the microns, fine wools have seen the largest decline in the past year. In the South region, 18-micron wool was 7.9 per cent lower year-on-year. A slightly smaller decline of 6.7 per cent was seen in 20-micron wool. However, 20-micron wool is sitting much closer to average at 5.8 per cent behind its five-year average. In contrast, 18-micron wool is 16.5 per cent below its five-year average. Crossbred wool saw some gains across the past year with 28-micron wool up 18.5 per cent year-on-year. However, at 385c/kg it is languishing 21.5 per cent below the five-year average. The different year-on-year movements largely reflect supply trends. Fine wools have seen the largest increase in production in the past 12 months while medium and crossbred wools have seen more stable production.

Supply is set to remain below levels seen in the 2023/24 season. Increased sheep turn-off in the past 12 months will mean fewer sheep shorn in 2024/25. In addition, dry conditions affecting major sheep regions in 2024 could also see lighter wool cuts. As a result, wool production is expected to decline further following a 3.8 per cent fall in the 2023/24 season. Unfortunately, it is unlikely that tightening supply will have a positive impact on prices. Recent months have seen the market remain stubbornly subdued even as supply declined. The average bales offered per week fell 30.9 per cent from April to July. This does not bode well for the forecasted steady decline in wool supply to offer much support for prices to rise.

Demand is set to remain weak when wool auctions resume in the week commencing 19 August. Economic challenges for consumers in key markets of China, Europe and the US are yet to show signs of easing. This should see lacklustre competition at auctions continue. With stable demand, prices are more likely to follow currency movements. A lower Australian dollar, currently around 65 USc is favourable for wool prices.

Source: Australian Wool Exchange