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Insights February 2022

14 February 2022 |Wool
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Insights February 2022

14 February 2022 |Wool
The February update provides an analysis of production and pricing trends for Australian wool producers.

Commodity Overview:

  • Australian shorn wool production is expected to rise, but January wool testing volumes were the lowest in over a decade.
  • Strong demand continues for Australian wool with fine microns performing particularly well.
  • Wool prices continued to trend higher with the Eastern Market Indicator (EMI) having risen for five consecutive weeks.

January had the lowest wool testing volumes in over a decade with only 21,908 tonnes greasy being tested. This was a 13.4 per cent drop compared to January 2021. The cumulative weight of wool tested this marketing season to the end of January is still 11.2 per cent above the prior season. The Australian Wool Production Forecasting Committee have forecast shorn wool production at 318 million kilograms greasy for the 2021/22 season. However, the recent reduction in wool tested has created some doubt that this forecast can be met. Summer rainfall has disrupted shearing and transport which could explain some of this decrease. The lack of shearing labour due to COVID-19 isolation measures could also be impacting the number of sheep being shorn. Testing data in coming months will show whether this downward trend is due to weather and logistical issues. There is potential that a wider shift is happening away from wool. Strong sheepmeat prices are likely to see an increase in crossbred wool and some producers switch to wool-shedding sheep. However, testing data needs to be viewed from a longer-term perspective than just a month to discern if this is what is taking place.

The Australian wool market has recorded strong gains in the past month led by fine microns. Strong demand has kept prices supported even with large offerings of over 40,000 bales each week. Australian wool exports continue to be dominated by China with 79 per cent of wool exported there. Italy, India and Czech Republic have also been active buyers.

The global natural fibre market is performing much more strongly so far this year. Cotton prices are at record highs which is providing some spill over support to the wool sector. The average price of cotton rose to US$2.23/kg in 2021, up 41 per cent year-on-year. This upward trend is expected to continue with prices set to increase a further five per cent in 2022. Reduced production in the United States and India are behind the increase. Strong demand from China for cotton imports is also supportive. High crude oil prices which are increasing the cost of synthetic fabrics is also driving demand for natural fibres.

Wool prices continue to trend higher with the Eastern Market Indicator (EMI) having risen for five consecutive weeks. The first week of February saw the EMI increase 42 cents to 1,449c/kg, the largest weekly jump since October 2021. Fine micron wools have increased by 159c/kg month-on-month and are pricing above the five-year average. Medium and broad types have also risen but remain below the five-year average. Strong demand continues for sustainable certified wools which remain at a price premium of around 15-20 per cent. Prices are expected to rise this year as international demand rebounds as people leave the house more for work and recreation.

 

Sources: Australian Wool Exchange, Australian Wool Testing Authority

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