Record wool prices are a boon for Australia’s woolgrowers who, after enduring decades of turbulent times, are being rewarded for their willpower.
Driven by a contraction in supply and escalating demand from China, a bale of fine wool is now fetching about $3000.
“It is as close as we have been to that golden era in a long time, with the current market running a close second to its heyday,” Australian Council of Wool Exporters (ACWE) president Chris Kelly said.
“Demand has noticeably ramped-up in the last six months at a time when supply levels were dwindling and there was speculation volumes would be smaller.
“It has been a get in or miss out attitude to buying since Christmas.”
While it remains a long way from the famous 1950s where wool was worth a pound for a pound and the Australian economy was known for riding on the sheep's back, current prices have reinvigorated a struggling industry.
In the next four weeks, Fairfax Media’s Wool Power will analyse the impact of the high prices, looking at where the boost in profits are being invested and whether the good times are set to continue.
In the past decade, 25 per cent fewer bales have been sold, falling from 2.3 million in 2006-07 to 1.7m last season.
The contraction in production has triggered a change in buying behaviour, which according to Mr Kelly had stabilised the market with the “hand-to-mouth” buying the new norm.
“The pipeline is very empty,” he said.
“There appears to be no surprise volumes coming toward us so overseas customers are acting accordingly.
“Brokers are reporting low levels of stock with most growers wisely taking the opportunity to offload old stock. It is hand-to-mouth with nervous participants making sure they don’t miss out.”
He said exporters were not holding domestic reserves because of the increase in global demand, with “nervous pressure” on securing supply.
“Europe have been quite active on those traditional, finer types of non-mulesed status wool, against the backdrop of nervous supply,” Mr Kelly said.
“European buyers are circling those types very strongly.”
The pressure has seen repeat breakthroughs of Australia’s record prices in the past 12 months.
The latest was achieved last week, with the Eastern Market Indicator record reset at 1596 cents a kilogram at the time of publication, and the Western Market Indicator at 1673c/kg.
China has retained its position as the most powerful player, purchasing 74.5pc of Australia’s national clip sold at auction, or 258m greasy equivalent kilograms – an increase of 9.1pc on the prior season.
India was the second largest importer of Australian wool, with 6.6pc of the clip, or 24.5m kg, followed by Korea which reported one of the largest falls in consumption to 17.6m kg – down 16pc on the year prior.
Italy and Czech Republic imported a combined 30m kg of mainly 19 micron and finer wool.
There was a 6.2pc increase in the volume of wool declared last season to 61.2pc, compared to the year prior, with 9.9pc non mulesed, 2.9pc ceased mulesed, 27.7pc pain relief and 20.6pc declared mulesed.
The industry resurgence is global with South Africa reporting a 24pc jump on raw wool sales in seven weeks.
Mr Kelly said the impact was an increasing trend for buyers to sidestep the physical auction and go direct to woolgrowers in an effort to secure supply.
“There have been attempts to forge relationships with longer term contracts,” he said.
“That is also prevalent in New Zealand with Melbourne’s offerings reduced from five sales prior to Christmas to two.
“We’re trying similar things in Tasmania, (with Australian Merino Exports), and New England Wool are trying pretty hard to lock supply.”
WoolProducers Australia president Richard Halliday said there had been an increase in wool production, stimulated by the record prices, with many producers investing in flock expansion and succession planning.
“There seems to be an increase demand for Merino rams this year which suggests producers are holding numbers to put back in the system, ultimately this will lead to an increase in wool production,” Mr Halliday said.
“It will be 24 months before we have a big increase in Merino wool, but the positive is with supply and demand at the moment those that are still passionate about wool will get strong returns in the next 12 months.
“There were people who were severally impacted by the collapse of the reserve price scheme and high interest rates which have taken 12 of the last 15 years to recover.
“Those that stuck with the industry are finally being rewarded.”
- Next week: Pressure on processors; wild dogs