Insights February 2023

Commodity overview

• Fine wool prices have continued to recover after a slump in the latter half of 2022. Prices remain up to 600 cents lower than the record highs of mid-2022.
• Pass-in rates were below seven per cent for two of the first four sale weeks of the year.

Wool offerings at auction returned to more than 50,000 bales in the first selling week of the year. High supply was driven by a recovery in prices during December of 2022. 17-micron wool has now rebounded into the top quartile for prices over the last five years. This remains 600 cents lower than the historic highs of mid-2022. Medium micron wool prices have remained relatively steady throughout the new year. The stability of medium wool prices does present a challenge to growers who are continuing to face higher input prices with steady returns. Elevated prices supported pass-in rates under seven per cent in the second and fourth sale weeks of the new year. The Eastern Market Indicator has risen by 29 cents since the end of last year reaching 1,356 cents. This remains 93 cents lower than the same time last year due to the significant price decrease of fine wool.

Wool testing volumes climbed during January suggesting that growers are working through the backlog of shearing following the wet spring of 2022. This season's cumulative testing tonnage is now almost three per cent higher than the previous year at the same time. Victoria and Western Australia remain behind their testing volumes year-on-year. Wool offerings at auction are expected to be 3.5 per cent higher over the next three weeks when compared to the same time last year.

Chinese businesses have shown strong support in the wool market throughout the new year. The COVID-19 outbreak in China has been extremely rapid with an estimated 80 per cent of the country’s population having already been infected with the virus. This may indicate a faster than expected economic recovery and an elevated GDP growth rate. This will have a significant impact on demand in the wool market. On the contrary, central banks are continuing to ease consumer demand by raising interest rates to curb the highest global inflation in some three decades. It remains difficult to assess the precise impact this may have on the retail industry.

Sources: Australian Wool Exchange, Australian Wool Testing Authority