AS record breaking wool prices flush supply out of storage, Australia’s bullish wool market remains a long way from the famous 1950s where wool was worth a pound for a pound.
Last week, the Australian Wool Exchange Eastern Market Indicator hit a published record high, reaching 1681 cents a kilogram, with more than $170 million turned over in the past fortnight, which was paid for nearly 90,000 bales nationally.
Woolgrowers are reaping a 30 per cent gain for their wool clip, or 400c/kg clean higher than at the same period last season.
Driven by unquenchable demand from China, Australia’s largest exporter, TechWool Trading, dominated the nation’s auctions, purchasing 7433 bales, or 17pc, of the national offering last week.
All types and descriptions across the entire merino spectrum have been hotly contested, with prices spiking from 40 to 100c/kg recently.
AWEX senior market analyst Lionel Plunkett said last week’s passed-in rate of 1.3pc was the lowest since August 2015, reflecting woolgrowers’ willingness to accept the current price levels.
He said with low wool storage reported in brokers’ stores, as well as low passed in rates, upcoming short supply was expected.
Beecher Wool Services managing director Wayne Beecher, Cowra, NSW, said the market conditions had flushed majority of supply out of storage.
“Just about everything in store is being tested as quick as possible, and sold, trucked and shipped within one to two weeks,” Mr Beecher said.
“Previously wool was held for about six weeks.
“Usually we would hold wool back for the second half of the season, but at the moment it seems dangerous to hold onto wool.”
The question now was where can the market go from here?
“Usually you would think an increase in price eventually would increase supply, but I am not sure whether the Merino industry is capable of that now with competing commodities,” Mr Beecher said.
“Will we see supply increase or hold its ground, will prices increase or decrease?
“In this (central west NSW) region, every time weather conditions changed we had a 15pc increase in our cut instantly, but we haven’t seen that since 2000 because of the change in the structure of the flock which has a meat element now.”
Despite prices inducing quicker sales of growers’ clips, National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said the recent rise in the EMI was illusory and remained down on wool’s golden age.
“Once inflation is taken into account, current price levels are well below the extraordinary peak seen in mid-1988,” Mr Wilcox said.
“In fact, the EMI at 1652c/kg in real terms is a touch below the peak at the end of 2002.
“One thing to keep in mind, though, is that all commodity prices will have seen the same impact of inflation.”
He said on-farm productivity gains had offset the tendency for commodity prices to fall in real terms. “Australian woolgrowers now are more efficient at producing wool than in the late 1980s, with higher average fleece weights, increased lambing percentages,” Mr Wilcox said.
“The quality of the wool being produced is vastly different to that in the late 1980s, most notably with more superfine wool being produced.”