AUSTRALIAN wool growers can look forward to more good prices, unless they are producing ultra fine or super fine types.
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That was the message from Michell Wool chief executive officer Steven Read, speaking at the SA Sheep Industry Blueprint Launch last week, where he highlighted most wool types were trading in the top 5 per cent range for the past 15 years in Australian dollar terms.
The softer Australian dollar had boosted returns to growers but importantly it was not particularly expensive for customers buying Merino or crossbred wool in US dollars.
He forecast continued tight supply would support high prices, along with the growing middle class in China driving demand growth.
Despite wool production nearly halving in the past 15 years to 1.78 million bales in 2015 it was still a significant industry with $2.39 billion in auction sales and exports sales making wool still one of this country’s major agricultural exports.
The one “hole in the market” was 15-17 micron range where returns were below the cost of production for most producers and unlikely to change in the near future.
“We either need to be getting $24 or $26 a kilogram for ultra fine wool or we need to breed an animal capable of cutting eight kilograms of 15-17 micron wool,” Mr Read said.
He said the worsted and woollen knitwear markets which use these wools were struggling.
In contrast demand for doubled-sided fabric, classic outerwear was “red hot”, pushing cardings to record levels. Michell Wool who have increased their production and are still waiting on retail feedback whether it would remain in vogue for a third year.
“If you look at what we have delivered in terms of wool for this market segment compared to the number of people in China, it is insignificant, so if the trend continues there are plenty more customers.”
Major sporting brands were showing more interest in worsted woollen knitwear for active wear and worsted suiting had survived the “casual Friday”. Both were good signs.
Australia’s wool industry was not without its risks though, including its heavy reliance on China as both a processor and consumer.
“In the next five to 10 years the second biggest risk, after perhaps a disease risk which may limit exports as we have seen out of Africa in recent times, is disruption in China,” he said.
“There is simply not the processing capacity anywhere else in the world to process our wool clip and China now consumes at retail around half of the wool it processes.”
This was gradually changing with new spinning, weaving and knitting plants in Italy and a new combing plant coming on-line in Bulgaria. The signs were also positive in India.
“India has always been a great growth opportunity for the wool industry but it hasn’t done a great deal in the 30 years I have been travelling up there,” Mr Read said.
“With the changing government in India it will hopefully provide some competition to China.”
Another threat was an oversupply of cotton with up to a year’s stockpile in China, and man-made fibres being relatively cheap compared to wool.
Mr Read said one certainty would be increased price volatility.
He encouraged wool growers to use derivatives and minimum price contracts to minimise this risk and also make the most of good market intelligence.
“More often it is when you sell more so than how you sell that delivers the best return to growers,” he said.
