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Insights October 2024

7 October 2024 |Wool

Insights October 2024

7 October 2024 |Wool

Commodity Overview

  • Wool markets face a fascinating month ahead as sellers will keenly observe whether improved buyer sentiment can be sustained and support prices against the downward pressure from a rising Australian dollar and increasing offerings.
  • Despite an improvement to start October, wool prices remain lower year-on-year despite supply at wool auctions also trending lower in recent weeks.

Australian wool prices fluctuated during the past month but ultimately finished higher. The Eastern Market Indicator (EMI) gained 12 cents (+1.1 per cent) across the first two weeks of September. That gain was promptly lost over the next two weeks as the EMI returned to 1,087c/kg. This rise and fall largely followed currency movements. The Australian dollar eased from 68.1 USc at the end of August to 66.6 USc in mid-September (-2.2 per cent). This prompted a lift in wool prices. But the Australian dollar then climbed to 69.3 USc by the end of September (+4.1 per cent). At this level, the dollar was up 8.4 per cent from its 2024 low in mid-April and at its highest point since February 2023. It is therefore not surprising that wool prices saw a reversal of their early-September gains and fell. However, it was surprising then to see the EMI climb 17 cents in the week ending 4th October. Improved buyer sentiment led to stronger competition and spirited bidding, leading to higher prices. This is an encouraging shift following months of lacklustre demand. At 1,104c/kg, the EMI sits 1.6 per cent higher than the end of August but still down 3 per cent year-on-year and 13.4 per cent below the five-year average.

Supply to auctions tightened further in the past month. Average weekly bales offered in September was 28,955, the lowest since September 2020 and 28.7 per cent lower than a year earlier. This continues the declining trend seen since April. Volume offered for the season-to-date is down 22.7 per cent year-on-year. This equates to approximately three weeks of supply. Reduced offerings have been more prevalent in Western Australia. Offerings in the west are trailing last season by 30.2 per cent. This compares to a 21.2 per cent decline in eastern Australia. Dry conditions in last 12 months have slowed wool growth and prompted some destocking. More recently, wet weather has interrupted shearing. As a result, September saw a record low number of bales offered. The weekly average of 4,205 bales for Western Australia was down 42 per cent year-on-year. The scale of the decline in offerings to auctions around the country outpaces the forecast reduction in 2024/25 wool production. This suggests wool growers are holding back bales from auctions in hope of future price improvements.

A graph showing the Eastern Market Indicator and weekly bales offered since July 2021. The EMI has drifted lower over the past 3 years, but saw an uptick in the first week of October. The number of bales offered has declined sharply since April.
Source: Australian Wool Exchange (AWEX)

The recent lift in wool prices was driven by finer microns. The first week of October saw 18-micron wool lead the way in the southern region with a 46 cent (+3.2 per cent) rise. This followed a 15 cent fall throughout September but still trails where prices were just after the August recess. A smaller gain was seen for 20-micron wool which rose 29 cents (+2.3 per cent). Again, this regained the ground lost during September and still trails the post-recess price. Crossbred wools saw less volatility in the past month as they continue to languish at historically low levels. The price of 28-micron wool is 21.9 per cent lower than the five-year average compared to 18-micron which is down 17 per cent and 20-micron down 7.3 per cent.

A potential reason for medium wools holding a bit closer to average is their relatively larger decline in supply. Overall, season-to-date test volumes are down 8.1 per cent year-on-year. This is largely due to a 17.5 per cent decline in volumes of 20-22 micron wool. In comparison, finer wools between 17-19 microns are down only 5.6 per cent.

A graph showing the price of 18-micron, 20-micron and 28-micron wool in the south selling zone since July 2021. Prices have generally eased since the start of 2024 but picked up in the first week of October. 28-micron wool is languishing at historically low levels.
Source: AWEX, Australian Wool Testing Authority
A graph showing the volume of wool tested between July and September in the past two years by micron. Most Australian wool is between 17-21 micron. There has been a decline in the volume of wool in this micron range in 2024/25 compared to the prior year.

Wool growers will be eager to see if the renewed buyer sentiment that started in October can be sustained and lead to much needed improvements in prices. While this will indeed by crucial to the direction of prices, a couple of factors remain against a strong price rally. Firstly is the likelihood of further appreciation in the Australian dollar. Growing interest rate differentials as Australia holds the official cash rate steady while major economies such as the US begin to lower interest rates is usually a driver of a rising Australian dollar. Given, the wool market’s susceptibility to currency movements, this would place downward pressure on wool prices for the remainder of 2024. The other factor is supply. The average seasonal trend shows the number of bales offered rises 29 per cent from the start of October to the end of auctions for the calendar year. Tight offerings have been unable to lead prices higher in recent months. The seasonal increase in offerings would likely add downward pressure to prices. On a positive note, economic stimulus in China may be a helpful factor to spur buying activity. This will be a crucial factor to watch over the coming months.

This article is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Rural Bank, a Division of Bendigo and Adelaide Bank Limited, ABN 11 068 049 178 AFSL/Australian Credit Licence 237879, makes no representation as to or accepts any responsibility for the accuracy or completeness of information contained in this report. Any opinions, estimates and projections in this report do not necessarily reflect the opinions of Rural Bank and are subject to change without notice. Rural Bank has no obligation to update, modify or amend this article or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth therein, changes or subsequently becomes inaccurate. This article is provided for informational purposes only. The information contained in this article does not take into account your personal circumstances and should not be relied upon without consulting your legal, financial, tax or other appropriate professional.

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