banner.png

Mecardo Blog

A supply and currency boosted wool price cycle

Greasy wool prices have weakened in the past couple of months, from high levels, so the natural question is “What is going on?”. This article is an assessment of the background to the current wool market to help understand where prices are likely to go.

The first thing to check is what the major fibres (cotton and polyester staple) are doing as they will show the trend (if any) that apparel fibre prices are following. Greasy wool (merino and crossbred, carding and combing) is part of a much bigger complex of apparel fibre markets, much like sheep meats are part of a much larger complex of animal protein markets. Wool prices tend to follow the same trends of the general apparel fibre markets, as they respond to common demand signals.

USD fibre price indices

In order to look at prices from the demand side of the market, US dollar comparative figures are used. This identifies that the different fibres tend to follow similar trends and cycles. They all fell heavily in 2008-2009, during the financial crisis of the time, and subsequently all recovered through to around 2011.

The 2011 cycle was dominated by cotton which rose to price levels not seen since the US civil war some 148 years earlier. After 2011 fibre prices trended lower, with the EMI bottoming first in 2015 and the other fibres in 2016. After 2015-2016, apparel fibre prices trended higher through to mid-2018, after which they have weakened.

The point of this extended description of apparel fibre prices movements is that wool prices more often than not follow the direction set by the greater apparel fibre market. So, what does that portend for wool prices? The general trend of apparel fibre prices looks to be a downward one, which will require stronger economic growth out of the major northern hemisphere economies to turn around.

EMI in USD and AUDWhile the general apparel markets set the trend for wool prices, exchange rates and supply can impact on the price levels we see in Australia. The exchange rate does not change the trend or cycle but does affect the price level. This recent price cycle has been an extraordinary one in Australian dollar terms, but in US dollar terms it has been around 2011 levels.

The fall in the Australian dollar in 2014 boosted the rising price cycle for the 2015-2019 period. The floating Australian exchange rate is designed to act as a shock absorber, and if economic conditions deteriorate in the next year or two there is a good chance a lower Australian dollar will help to cushion lower wool prices.

Change in Australian Merino combing volumes and priceSupply has been a big issue in the Australian market for the past 18 months. In early 2018 the supply of 20-24 micron merino wool started to fall, and it is still falling which is a function primarily of drought. This story is twofold, firstly one of a significant fall in broad merino wool which has been accompanied by a significant rise in price.

Where supply has risen in the fine wool sectors, price has been at best steady, or fallen. Rainfall is required this coming spring to reverse the supply trends, and assuming this comes then the price for broad merino wool will face downward pressure in 2020 from increased supply, while improving fine merino premiums from decreased supply will soften the effects a general down cycle for fine wool prices.

This article first appeared on Farm Online

Topics: Wool market / wool price, Wool industry

Be the first to hear!

The latest opinion, news, reviews and offers

Subscribe to Mecardo's blog to be the first to hear the:

  • Opinion of Mecardo and guest market specialists on the 'hot topics' in markets

  • Reviews of tools and resources

  • News on upcoming webinars, training and other resources

  • Special offers from Mecardo

 

Yes, I'd like to subscribe to Mecardo's blog

Recent Posts

Follow Me