Wool supply is set to rise as the national flock increases to 70 million head

With increased supply of wool and steady demand it is expected the best news on price is for it to hold steady

Wool producers are positioned to benefit from increased wool supply and stable prices
 

With sheep flock size expected to grow beyond 70 million head in the coming year it continues a trend of growing sheep numbers following the easing of the 2019 drought.

During 2019 domestic wool production sank to historic lows from which it has since recovered, with production forecast to be greater than 320 million kilograms greasy this year.

The increase in the number of sheep to be shorn will put more pressure on the labour supply shortages which have delayed and interrupted shearing over the past two years.

Demand predicted to rise

Consumer demand for wool products is expected to grow as people return to the workplace and the effects of COVID-19 wane. However, supply chain disruptions caused by COVID-19 restrictions in China coupled with the Russian invasion of Ukraine will continue to hurt demand.

Wool exporters must grapple with both of these problems at a time when Chinese mills would normally be increasing production to meet the consumer demand for the Northern Hemisphere winter. This is expected to impact the confidence of wool exporters who struggle with a delayed cashflow.

There is currently a great deal of uncertainty surrounding inflation and interest rates which are likely to be detrimental to the growth in retail sales for wool products.

Retail sales rebounded to unprecedented levels during 2021 following the 2020 recession caused by the COVID-19 pandemic.

Sales have since diminished which may be due to increased cost of living. Interest rate rises intended to slow inflation in both Australia and the US will further reduce confidence in the retail sector, potentially driving down demand for wool products.

Price expected to remain steady at best

The Eastern Market Indicator is forecast to remain steady at around 1,400c/kg in the coming year off the back of economic uncertainty surrounding consumer demand globally.

This forecast aims to balance earlier signs of strong consumer demand against the coming inflationary pressures on household budgets.

Prices have continued to strengthen in recent months despite China’s COVID-19 outbreak affecting regions with major wool production facilities. This may indicate some price stability in the face of another COVID-19 outbreak in China.

The price discrepancy between the different microns has also become stark with the 17-micron wool is now more than double the price of 22 micron. The price premium for fine wool has been accelerated since the beginning of the pandemic.

This discrepancy could be exacerbated by the increase in demand for suits and high-end retail if the return to the office continues to be a feature of the next year.

Therefore, the stagnation of the EMI over the coming year is likely to see the price of medium wool weighed down more heavily compared to fine wools.