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Insights February 2021

8 February 2021 |Wool
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Insights February 2021

8 February 2021 |Wool
The February update provides an analysis of production and pricing trends for Australian wool producers.

Overview

  • The Australian wool market continues to outperform expectations with the AWEX EMI rising to 1,291 c/kg.
  • Wool prices are expected to be volatile into February, though finer wools will continue to see greater levels of support in comparison to broader wools.
  • The Chinese import quota for Australian wool has been increased by five per cent to 38,288 tonnes though Australian wool exports are unlikely to reach that level this season.

The Australian wool market has rebounded strongly throughout the first month of sales in 2021, with the AWEX EMI rising to 1,291 c/kg. Wool prices have exceeded market expectations so far this year thanks to greater than anticipated overse\as demand, particularly from China, though additional buyers will need to join the Chinese bidders if current prices are to be maintained in the coming months.

Fine micron wools are continuing to see the highest level of demand from both domestic buyers and export markets. This strong demand for fine wools is prompting some farmers to draw down on their fine wool stocks to fill the supply shortfall and take advantage of the higher prices currently on offer. Medium and broader merino wools are in high supply domestically following an exceptional spring season and high feed availability. This excess supply of broad wools is anticipated to continue in the short term with Australian wool production expected to rise over the coming months thanks to rebuilding flock numbers, ongoing feed availability, and the potential easing of travel restrictions that may alleviate the current shearer shortage impacting the industry.

Wool prices more generally are expected to be volatile in February, with international demand remaining difficult to predict.  Woollen mills in China are beginning to slow heading into the Chinese New-Year holiday, with the long-anticipated Chinese Army uniform order also delayed further. Despite these challenges, Australian wool producers should continue to find support from the Chinese market following the new year break with the Chinese economy moving from strength to strength over the last quarter. China remains a key market for Australian wool, currently accounting for 85 per cent of all wool exports, up from an average 70 per cent across the last decade. The Australian wool market remains mostly untouched by recent trade tensions with China, with the Department of Foreign Affairs and Trade (DFAT) recently confirming the Chinese import quota for Australian wool has been increased by five per cent to 38,288 tonnes, though given the recent droughts and low sheep numbers nationally, this increased quota appears unlikely to be filled for the coming season.

The continuing global rollout of COVID-19 vaccines should assist international retail and consumer demand to recover, particularly throughout the United States and parts of Europe where harsher restrictions have been in place. This recovery in consumer confidence and demand for woollen clothing will support Australian wool prices with finer lots expected to see the greatest price rises, helping to further increase the price premium over broader wools.

 

Sources: Australian Wool Exchange, Australian Wool Testing Authority

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