Australian wool market endures volatile year in 2022

Traditional trading partners also felt the pinch.

"India is a significant market for Australian wool, with India in recent times being the third largest single-country importer, however, was hit hard by the COVID-19 pandemic resulting in an initial 30 per cent drop in the value of India's domestic textile and apparel market," Wool Producers Australia CEO Jo Hall said.

"India has since become more active in the Australian wool market, with an 82pc year-on-year increase in volume being purchased between July, 2021 to January this year."

Rabobank associate analyst Edward McGeoch said within the various wool micron ranges there had been significant drops in prices paid for the finer micron wools, with falls between six to 15 per cent since the beginning of the year.

"There were slight increases for some mid-micron wools," he said.

"But the biggest price drops, of up to 30 per cent, have been in the higher micron type wools. Looking at prices across the last 10 years, some of those high-micron wools are at their lowest price for that period."

The price decline is due to a number of factors including the slowdown in the Chinese property market, meaning a reduced need for carpeting - a major market for high-micron wool.

"High micron wool is also used in the production of fake-fur, and when there was a downturn in the demand for fake-fur during COVID this affected the market for the coarser types of wool," Mr McGeoch said.

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Mr McGeoch said falling international consumer confidence in major wool markets, such as China and the US, through 2022 is the major factor behind the downturn in Australian wool prices.

"International retail apparel sales drive the Australian wool market and while there was a strong start to the year, growing international economic uncertainty has seen a negative effect on the sale of wool apparel and hence local prices," he said.

"Key markets for wool suits - US, Japan and France - have seen reduced product appetite with sales down between 20 and 50pc.

"And the long COVID lockdowns in China through the year have affected the country's wool milling capacity and saw reduced demand for Australian wool."

The Eastern Market Indicator climbed significantly through the first half of 2022 to reach a high of approximately 1474cents/kg.

"And subsequently we have seen the EMI slide back by roughly 20pc from those high prices seen earlier in the year," Mr McGeoch said.

Australian Wool Innovation reports that the final weeks of auctions for the calendar year have seen a strong rebound after uncertain demand in the weeks leading into December.

In just two weeks, 103ac (+8.4pc) has been gained on the Eastern Market Indicator and even more relevant is the 10.2pc or 84usc gain on the demand leading USD EMI figure.

Even more impressive has been the Western markets indicator - which is almost solely Merino based.

The WMI USD price has shot 10.5pc higher in just the past fortnight.

The latest Australian Wool Production Forecasting Committee's forecast of shorn wool production for 2022/23 remains at 340Mkg greasy, up 5.0pc on the 324Mkg greasy estimate for 2021/22.

Shorn wool production is expected to increase by between 3.2pc in New South Wales to 13.5pc in Queensland.

The number of sheep shorn is forecast at 74.9 million head, up 4.6pc.

Average cut per head is forecast to increase slightly to 4.54 kg greasy.

Committee Chairman, Stephen Hill said that "above average to highest on record rainfall deciles throughout most wool producing regions has produced abundant pasture feed contributing to a further rebuilding in the Australian sheep flock and high fleece weights."

Australian flock numbers are forecast to increase by 4.6pc year on year, with the number of sheep shorn rising to 74.9 million head during 2022/23 - the highest since 2017/18.

Continued wet conditions with lower average temperatures have negatively impacted pasture feed quality with many producers facing difficulties in accessing waterlogged or flooded paddocks to manage their sheep flocks and pasture.

The wetter season has increased the hazard posed by internal and external sheep parasites which has negatively impacted on sheep production, especially younger sheep.

Despite the challenging seasonal conditions, the October 2022 Sheep Producers Intentions Survey indicated that sheep producers are cautiously optimistic about the wool sector.

However, their optimism is tempered by an expectation that accessing labour would become more difficult and input costs will rise over the upcoming 12 months.

The climate conditions are also distorting shearing patterns, wool receivals and Australian Wool Testing Authority test figures.

The large number of rainy days during spring and early summer has delayed shearing due to wet sheep and difficulties in keeping sufficient dry sheep for shearing to continue.

Delays are also occurring in logistics between the farm-gate and broker stores resulting in AWTA test volumes being lower than expected in the first half of the season.

July to November 2022 AWTA key test data indicates wool quality is very similar to last season, although vegetable matter content is expected to increase as the season progresses.