Insights June 2023

Commodity overview

• Prices have come under heavy stress in the last month with discounts for all microns.
• The pass-in rate nationally for the last week of May reached the highest level since August 2021.
• Monthly testing volumes have peaked and point towards a significantly larger clip this season.

The Australian Wool Testing Authority has tested an additional 36,000 tonnes of wool during the month of May. The progressive total for the season is now almost four per cent higher than the same time last year. The significant elevation in testing volumes matches previous estimates. The national wool clip for 2022/23 was forecast to outpace the previous year due to larger flock numbers. The strong growth in wool supply may be tempered by poor sheepmeat and wool prices persisting throughout this year. The rate that breeder sheep are sold rather than retained has risen in the first quarter of 2023. This is indicative of the beginning of the end of the surging flock rebuild embarked on by growers following the 2018/19 drought. The trade in spring will reveal the level of confidence for growers in further building flock numbers. This challenge comes at a time of uncertain medium-term seasonal conditions.

Auction prices across the Micron Price Guides (MPGs) fell significantly during May. All merino wool MPGs fell by more than 116 cents since the start of May. Average losses for merino wool stronger than 19 micron averaged 131 cents during this time. Strong wool has previously been less vulnerable to price discounts throughout 2023. 21 micron wool is now more than 200 cents below the five-year average for those types. MPGs lower than 19.5 micron have continued their downward trend that has been largely unbroken since February. The lack of buyer support during May drove an average pass-in rate of 18 per cent and a height of 27.3 per cent. Large wool testing volumes and low wool sales numbers will be contributing to pent up supply of wool across the country. The first sale week of June ended with an Eastern Market Indicator (EMI) of 1,209 cents. This is the lowest EMI in two and a half years. The EMI shows the breadth of the price discounts across all MPGs.

Demand for wool products is set to come under continued pressure with negative GDP numbers challenging the industry. Germany – the largest economy in Europe – has entered a recession. A diminishing economic outlook will negatively affect demand coming into the European winter towards the end of the year. The International Wool Textile Organisation (IWTO) held their annual congress in Kyoto in late May. The IWTO stressed the importance of differentiating wool products in a market has a growing number of luxury consumers. Medium-term economic headwinds present a challenge in targeting these consumers.

Sources: Australian Wool Exchange, Australian Wool Testing Authority