Insights March 2023

Commodity overview

• The last four sale weeks of February averaged national offerings of greater than 50,000 bales indicating both an interest in the year’s opening prices and an increase in supply.
• The recovery of prices since late 2022 has slowed down after a strong start to the year.

After initial gains across the Micron Price Guides early in the year, there has been some easing during February and into March. These discounts drove the pass-in rate to nearly 17 per cent at its peak during February when 57,000 bales were offered. This was the highest weekly offering since the outbreak of the pandemic drove a fire sale in March 2020. Offerings of this magnitude are an indicator that wool growers are displaying keen interest in current prices. The high offerings have been exacerbated by the increase in supply since the wet spring of 2022. The Australian Wool Testing Authority tested an additional 5,000 tonnes of wool in the last two months when compared to the same period last year.

Stronger lots of wool have continued to hold value with 22-micron opening in March at 1,470c/kg after averaging 1,349c/kg across 2022. Below 19-micron types are all currently below average prices of the previous year after reaching historic highs during 2022. All the prices are hovering in the range of the in 6.5-8 decile of the last five years. The Eastern Market Indicator (EMI) remains 39c/kg lower than the same time last year which also serves as a reminder of the strong post-COVID market. The USD EMI fell in the beginning of March largely driven by a weakening Australian dollar. The dollar has now fallen to its lowest price since before Christmas which has elevated the buying power of foreign markets.

ABARES has released its commodity outlook report which has forecast the EMI to increase to 1,443c/kg across 2023/24. This increase in price will be driven by higher demand in advanced economies. China’s rapid recovery from the COVID outbreak has supported this finding. The Chinese government has measured a 2.5 per cent increase in the Purchasing Manager Index (PMI). The PMI is a measure of economic prosperity focused on manufacturing and services industry. The resilience of the Chinese economy remains the bulwark of the Australian wool industry. The ABARES report has also highlighted that higher prices in 2023/24 may be supported by the onset of drier conditions setting in. Drier conditions are expected in the medium term after three good seasons. This will decrease Australia’s flock numbers and wool supply for the first time in four years. The report’s models of prolonged dry conditions do not forecast the record prices experienced during the last drought of 2018/19.

Sources: Australian Wool Exchange, Australian Wool Testing Authority