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Wool becoming more competitive
24
Sep '08
Australian shorn wool production is forecast to continue its downward trend in 2008-09, reaching an 80 year low of 387 000 tonnes. The global economic slowdown will continue to affect consumption of woollen products, resulting in a softening of demand for raw wool. Reflecting this, the eastern market indicator price (EMI) is forecast to average 880 cents a kilogram clean, around 7 per cent lower than in 2007-08.

In 2007-08, the EMI averaged 945 cents a kilogram clean, 9.4 per cent higher than 2006-07. After reaching a peak of 1045 cents a kilogram clean in January 2008, it declined steadily, ending the season 19 per cent lower. The price decline can be attributed to softening demand brought about by the global economic downturn, combined with a strong Australian dollar relative to the US dollar which made wool more expensive for foreign buyers.

So far this season the EMI has averaged 866 cents a kilogram clean, 5.2 per cent lower than for the same period last year. However, up to mid-September, the EMI averaged 2.4 per cent higher in US dollar terms because of the strength of the Australian dollar relative to the US dollar. The positive effect on wool prices of a decline in the value of the Australian dollar is evident by the 3 per cent increase in the EMI which occurred when the Australian dollar fell below US$0.90 in mid-August and again when it fell below US$0.85 earlier this month. For 2008-09 as a whole, the assumption of a weaker Australia-US exchange rate has led to a marginal upward revision of the ABARE price forecast made in June, to 880 cents a kilogram clean.

The number of sheep shorn is forecast to decline to 87 million in 2008-09 – a fall of 4.4 per cent from the 2007-08 season – as a result of a smaller flock size. Good summer rains in many areas of the wheat-sheep zone are expected to translate into better fleece quality and improved average cut per head during the spring of 2008.

So far this season this has been reflected in the Australian Wool Testing Authority (AWTA) key test data which indicate that staple strength for July and August was 1.3 per cent higher than for the same period last year. For New South Wales, the largest wool-producing state, the increase was even higher at 3.3 per cent. Average cut per head for 2008-09 is forecast to increase by 6 per cent compared to 2007-08, to 4.47 kilograms a head. Despite these positive indicators regarding the wool clip, it is the smaller size of the national flock that will be the key determinant of the wool supply.

In 2008-09, the total supply of wool is forecast to be 424 000 tonnes. Of this, shorn wool production is forecast to account for 387 000 tonnes, 3.3 per cent lower than 2007-08. Wool offerings so far this selling season have provided support for this forecast, with offerings 8 per cent lower than for the same period of last year. While spring shearing is now well underway, no significant reversal in the downward trend intotal offerings is anticipated.

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