The 2019-20 season was a season to forget for woolgrowers, processors and retailers. Shorn wool production experienced another annual decline with flock numbers continuing to be impacted by the effects of drought. The destruction of global demand due to COVID-19 had a significant impact on the industry with wool buyers reverting to purchasing on a hand-to-mouth basis which saw prices fall to 5-year lows.
The Trangie Agricultural Research Centre has a long history of research in sheep genetics and has contributed substantially to the understanding of the genetic characteristics of Merino sheep. Some 80% of Merino rams sold in NSW, and 60% nationally, are now derived from studs that use selection indexes in their breeding programs. Long term research programs at Trangie have made a major contribution to the development of these indexes.
Prolonged drought conditions continued to impact flock numbers and in-turn shorn wool production with high lamb and mutton prices providing an incentive for producers to send a greater proportion of their flock to slaughter. Despite a significant improvement in seasonal conditions in the second half of the year the compound effect of increased sheep slaughter rates and low lamb marking numbers was a substantial decline in the estimated number of sheep shorn 44.
Low sheep numbers resulted in shorn wool production falling by an estimated 5% to 94.3 million kilograms greasy 44. However, the improvement in seasonal conditions in late summer and autumn resulted in a year-on-year increase in per head average wool cut to 4.3 kilograms greasy 44, which helped moderate the production decline.
Key wool test parameters reflected the tough seasonal conditions with the season ending levels either at or near the lowest levels since 2000-01. Average clean yield remained low ending the season at 60.3% whilst mean fibre diameter remained relatively steady at 20.1µm. Staple length increased slightly to 84.5mm, reflecting the improvement in seasonal conditions from early 2020 47.
The price of wool is sensitive to small changes in supply and demand, mainly due to the availability of substitute fibres and the low volumes of wool consumed relative to those fibres 15. Low crude oil prices are also another major factor affecting the rate of substitution in favor of synthetic fibres. Wool is a traditionally niche market so small changes in consumer incomes, spending habits and shifts in fashion can have a major impact on prices and export volumes 15.
Fibre and textile manufacturing hubs around the globe faced a double impact from the outbreak of COVID-19. Lockdowns saw processing operations shutdown, firstly in China and then gradually around the globe, interrupting the supply of textiles. The global recessionary outlook also saw consumers turning away from discretionary and luxury products, such as wool, in favor of cheaper fibres 35. Global seasonal consumptive demand for wool deteriorated and, despite a substantial recovery of processing capacity in China, order cancellations and lockdowns saw major interruptions within the retail sector.
Average wool prices reflected the depressed demand conditions that resulted from the global economic uncertainty created by the US – China trade war and the outbreak of COVID-19.
The reduction in demand was so significant that even with supply at such a low level, prices did not increase as would normally be expected. The benchmark Eastern Market Indicator ended the year at 1,110 cents per kilogram, a fall of 605 cents or 35% on year-ago closing levels 46. The average over 2019-20 was 1,448 cents per kilogram, down 25% on the average for 2018-19 46. The regional indicators also saw significant annual falls, with the Northern Market Indicator down by 500 cents per kilogram and the Southern Market Indicator 487 cents per kilogram lower 46.
In response to the weak market many producers retained bales on-farm with the final year market offerings for the northern market down 13% and the southern down 14% on last year 46. Coupled with the reduced number of bales offered for sale, 17% of auction offerings nationally were passed-in 46, further highlighting growers reluctance to sell into the weak market (the long-term average passed-in rate for wool at auction is normally under 10%).
Steep falls were felt across all micron categories with the fall in price least at the superfine end, where the AWEX average 16.5 micron price guide was down by 21.8% year-on-year. The falls progressively increased to 40.9% at 21 microns 46. Interestingly fine wool price premiums increased significantly. Despite the overall market being down in price there was a distinct increase in micron premiums for 18.5 micron and finer with the superfine 15-micron premium rising from approximately 10% to around 60% year-on-year 112.
The disruption to milling and textile production following the COVID-19 outbreak resulted a fall in global consumption of wool textiles. As a result, NSW wool exports decreased dramatically in both volume and value. A total of 50,729 tonnes of wool was exported in 2019-20, down 15% compared to the previous year and down 30% on the 10-year average 94. In value terms, wool exports were worth $527 million, representing a decrease of 35% year-on-year and down 18% on the 10-year average 94.
The restrictions on trade also affected the number of available buyers and reduced competition. Lockdowns in the US, Europe and India saw many orders cancelled, leaving China as the only major purchaser and in a strong position to dictate prices 32. China once again accounted for the bulk of wool exports and maintained its market share of 85% by volume and 83% by value 94. China’s dominance was offset by significant reductions in the value of exports to India and the Czech Republic by 57%, 36% year-on-year respectively 94.
Fine and superfine wool account for approximately 60% of the total value of raw wool and top exports 94. In 2019-20, the volume of exports of fine wool of 19-micron and finer decreased by 14% in-line with the decrease in the total volume of exports. The value of exports of this wool also fell sharply by an even greater 34% 94. Similar downward trends were also observed for medium and broader-type wools but not to the same extent.