Insights September 2024

Commodity Overview

• Poor results following the resumption of auctions after a three-week recess suggests the steady softening of wool prices is set to continue for the months ahead.
• Wool supply typically increases from a low in winter to a peak in November which would add further pressure to prices. However, supply will continue to trend below average.

Wool prices continued to drift lower as auctions resumed from a three-week recess. The Eastern Market Indicator (EMI) lost 37 cents (-3.3 per cent) across the first two auction weeks. These declines took the EMI to 1,087c/kg, its lowest point since October 2020. The first week of September saw a minor gain of 4 cents. At this level, the EMI is 14.9 per cent below the five-year average. The market has been highly susceptible to currency fluctuations in recent months. The Australian dollar fell to a low of 64.9 USc at the end of July. A 4.9 per cent rise to 68.1 USc at the end of August weighed on buyer sentiment as auctions resumed. Likewise, a fall back to 67 USc in early-September likely supported a minor gain in the EMI.

Falls since the recess have been largest for fine and medium wools. In the South zone, 20-micron wool has lost 56 cents (-4.2 per cent). Similarly, 18-micron wool has fallen 41 cents (-2.7 per cent), despite an 11 cent gain in the first week of September. Meanwhile, broader wools have seen smaller losses. A loss of 10 cents (-2.6 per cent) has occurred for 28-micron wool.

Reduced supply appears to be offering no support to prices. Volumes offered to auction have declined each week since the recess. The first week back from the recess saw 42,440 bales offered, the highest volume since April. However, the first week of September saw 31.3 per cent fewer bales offered at only 29,166. This resumes the tightening supply trend which has characterised the past five months. This trend is reflected in Australian Wool Testing Authority test volumes. August volumes were down 19.7 per cent year-on-year and 4.5 per cent below the five-year average for August. Also highlighting the current tight supply situation is winter production was the lowest three-month period since winter 2020. Lower production is most evident in the 19-22 micron range. This range is down 19.2 per cent while finer wools only saw a 5.1 per cent decline.

The average seasonal trend shows a 32.3 per cent rise in monthly test volumes from August to a peak in November. This would place downward pressure on prices as the market has continued to soften even under tighter supply. While volumes may rise from August levels, tight production in 2024 means these volumes will see a greater gap to spring 2023 when production was 9 per cent above average. It is expected that wool supply will continue to trend at below average levels for the remainder of 2024.

Wool markets will continue to be confronted with subdued demand. There are no indications that economic challenges will improve to support renewed demand for wool by the end of 2024. A lack of strong buying interest and competition at auctions suggests prices could continue to drift lower to the end of the year. However, currency fluctuations will have an impact on the week-to-week movement in wool prices.

Source: Australian Wool Exchange, Australian Wool Testing Authority