Wool

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livestock

Wool

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  • Asset 2
    Output $1,226m est. Down 6% yoy
  • Asset 2

    Record breaking price of 2,116c in August 2018

  • Ship icon

    Exports to Thailand up 877% yoy

Record breaking wool prices eased pressures brought on by the continued drought, including increased costs and reduced wool yields and supply. While the wool industry fared better than many, the reduction in flock size and average wool cut per head contracted Output by 6% to $1,226 million (still well above the five-year average).

Genetics gives insight to Merino profitability and performance

NSW DPI’s Merino Bloodline Performance 2007-2018 report delivers genetic data for merino breeders and commercial wool producers, allowing them to identify the relative performance of bloodlines and fine-tune their breeding programs. Determinants of profitability, including diameter, fleece weight, live weight, staple length and strength, style and colour, and measures of financial performance allow producers to compare bloodlines on a profit per head or per dry sheep equivalent basis.

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NSW sheep flock and wool production

  • Sheep flock
  • Shorn wool production (greasy)
  • Wool receivals (mkg)

* 2018–19 Sheep flock numbers estimated

Download (.XLSX) Source: MLA (2019)

Production

Production was significantly down with wool sales dropping 16% to 98,000 tonnes, impacted by an estimated 9% decline in the wool cut per head19, 36. Continued dry conditions and destocking resulted in the national flock size nearing century low levels73. Fewer sheep to shear and lower fleece weights led to a significant decline in wool yield – 16% below the five-year average36.

The severe seasonal conditions also resulted in an increased proportion of superfine wools (18.5 microns or less) and 25% decrease in the supply of the traditionally popular fine and medium wools5.

Australian wool production by micron type

  • % change yoy
  • Mkg (greasy)
  • Superfine
  • Fine
  • Medium
  • Broad
Download (.XLSX) Source: AWI (2019)

Price

Following in the footsteps of the previous year, nominal wool prices again broke records in 2018–19 with the Eastern Market Indicator (EMI) peaking at a record high of 2,116c in August 2018. Prices continued to be well above the five-year average (by 25%)106, but tapered off and ended the season at 1,715 cents per kilogram as growing uncertainty on a range of fronts started to impact demand36. The average price over 2018–19 was 1,939 cents per kilogram, the highest on record and 12% higher than the previous year36.

Wool price spread relative to EMI

  • Superfine 17um
  • EMI
  • Coarse 26um
Download (.XLSX) Source: AWI (2019)

NSW wool exports

Download (.XLSX) Source: GTA (2019)

Trade

The value of wool exports fell by 7% year-on-year and volume by 17% as a direct impact of lower wool production; however, major trading partners and their market share has remained fairly consistent for the last several years. The export market continued to be dominated by China and remained steady year-on-year, accounting for 85% of the value of wool exports. Exports to Thailand jumped 877% making up 1% of market share, while for the more traditional markets of Italy and the Czech Republic, export values fell by 31% and 29% respectively87.

Macroeconomic
Conditions

High demand and prices for NSW’s limited high quality supply were influenced by the foot and mouth disease outbreak in South Africa, as China placed an embargo on South African wool exports from January to mid-May 2019. The removal of the embargo resulted in a market drop as wool backlogs from South Africa resumed shipping to China103.

Uncertainty in international markets was driven by continued and escalating trade tensions between the US and China. In 2018–19, retaliatory import tariffs did not extend to wool but if the US were to impose a 25% tariff on woollen clothing imports from China, this could significantly impact Australia’s wool industry as Australia supplies about half of China’s wool requirements5, 132, 23.

Outlook

The outlook in the short term is filled with uncertainty as wool production, exports and value will continue to decline as a result of reduced sheep numbers from the drought but also the growing trade insecurity caused by the US-China trade dispute. Chinese manufacturers may hold off wool purchases and potentially substitute to lower-cost fibre alternatives, particularly if mills attempt to avoid trading losses as a result of the high greasy wool prices.

However, on the positive side, once the rain does come, it is expected that farmers will rebuild their sheep flocks as medium-term global demand is expected to trend upwards and outweigh supply5.

Income and population growth in our key markets will assist the wool outlook in the medium term. A booming middle class, principally in China, and rising household incomes in emerging and developing countries will fuel demand for high value premium woollen products5.

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