Insights September 2023

Commodity overview

• Wool prices declined as auctions resumed following a three-week recess and generally remain lower compared to last year.
• Prices could find some stability as high supply and weak consumer demand are balanced by a lower Australian dollar.
• Growth in Australian wool production looks to be coming to an end with a 1.1 per cent decline forecast for 2023/24.

Australian wool prices declined across the last month following the mid-year recess. The Eastern Market Indicator (EMI) fell to 1,127 Ac/kg in the week ending 8^th September. This is one cent above where it finished the 2022/23 selling season before a short-lived rise to 1,179 Ac/kg before the recess. At its current level, the EMI is 4.2 per cent lower month-on-month and 14.6 per cent lower than a year ago.

In the past month, micron price guides for 18 and 20-micron wool in the Southern region have lost 5.7 per cent and 5.6 per cent respectively. This has kept 18-micron wool 22.4 per cent lower year-on-year while 20-micron is only trailing last year by 5.8 per cent. In contrast, crossbred wools have strengthened in the past month with 28-micron wool adding 15 cents while 30-micron wool rose 33 cents to now sit 4.7 per cent higher year-on-year. In the week ending 8^th September, the Western region bucked the trend in eastern selling centres to record rises across all MPGs of 17-50 cents. This took prices above their eastern counterparts for all MPGs in the Western region.

While price gains in the west could set a positive tone for upcoming auctions, the number of bales offered is set to remain a relatively high level. The number of bales offered in the week ending 8th September was 14.1 per cent higher than a year earlier and 5.1 per cent above the five-year average. Interestingly, pass-in rates have been relatively low since the recess. This indicates vendors are content to accept current prices. In the five weeks of auctions since the recess, only 11 per cent of bales offered have been passed in. This compares to a pass-in rate of 14 per cent for the same period a year ago when the EMI was nearly 17 per cent higher.

Demand for woollen products is set to remain subdued in response to challenging economic conditions. This could be partially offset by a lower Australian dollar which has fallen from 66.7 USc at the start of August to 64 USc in early-September.

Growth in Australian wool production is set to come to an end in the 2023/24 season. The Australian Wool Production Forecasting Committee have forecast a year-on-year decline of 1.1 per cent in shorn wool production. This is due to a 0.8 per cent increase in the number of sheep shorn being offset by a 2.2 per cent decline in average cut per head. This would see production fall back to the level seen in 2021/22. A modest fall in production is unlikely to alleviate the supply-side pressure on price across the season. However, an end to the recent growth trend means downward pressure on prices should not increase.

Sources: Australian Wool Exchange