A report published by AWI earlier this month observed that in the past 6 years Australian wool auctions have seen powerfully increasing price levels (bull run) and this is indicative of the strongest of demand signals, particularly more -so given the relatively unchanged supply scenario. The report went on the say that this is perhaps compelling evidence as to why exporters for the past few years have been operating very much to a “hand to mouth” basis and reticent to lock in forward contracts at “todays prices or less”. To bet against market trends that have been in place for 5 or 6 years for any sort of exposed volumes would simply be called gambling and the modern day trade is first and foremost founded on risk adverse trading behaviour and cautious operational methods.
As at the end of October, the EMI was at 1594ac/clean kg and fast approaching the record levels of 1614ac/clean kg for the week ending AWEX EMI figure. This level was set earlier in this season in August 2017 in Week 7 of the auction series. This represents a year on year increase of up to 20% of the value of Australia’s wool clip.
The Australian wool supply and volume of all wool tested through AWTA Ltd has been relatively stable over the past 6 seasons. The tested volume has been revolving around the 360 million kgs greasy plus or minus 5% during that period. Early indications at the end of the first quarter of the current season show that production is on the increase once more, with 9.2% additional weight flowing through the test house as compared to the same time period of last year. This follows on from the 5% increase recorded last year to see wool volumes tested go to 357.9 million kgs from the 2015/16 season figure of 340 million kgs.
Within the overall supply figures, the breed make-up of the Australian clip has also barely changed. Recent anecdotal accounts of “everyone moved to crossbreds or fat lambs” and that is “why the total wool supply has remained constant” cannot be borne out by any figures of wool being tested through the AWTA Ltd. In fact, the opposite is being evidenced. The past season has seen the lowest volume of crossbred micron wools tested for 8 years. Last season the crossbred micron wools made up 18% of the Australian wool clip tested compared to 21% back in the years 2010 to 2012.
What is clear, the report says, is that a fundamental shift in demand for Australian wool has been rebuilt into the global textile industry over the better part of the previous decade. In very simple terms, the consumer is exercising their discretionary spend on luxury items and that includes wool. The wool markets are sustaining the bull run on price, and this is in tandem with a very stable production scenario. These conditions have led us to a point whereby growers who have stood steadfast to their industry are justifiably and consistently being rewarded for their efforts. As economic conditions are forecast to continue to improve throughout the world, this should assist to enshrine these sort of price levels into on farm modelling.