Wool stockpile building at concerning rate

Last year, wool producers still had a skip in their step as prices remained strong.

I wonder how many could have appreciated their position on the price roller-coaster at that point. They were riding high and enjoying the outlook.

But then came the stomach-churning drop, where the roller-coaster feels like it's in free-fall downwards, and you close your eyes and wonder where it will end.

Powered by the impact of the global pandemic, the velocity of the fall in the wool market has been alarming.

In April, the EMI lost a staggering 155c in a single week.

Related reading: Open cry wool auctions cease in Melbourne

Last week brought more carnage, as wool auctions returned after the three-week winter recess. While the weekly EMI drop of 128c wasn't as big as that seen in April, it was the biggest percentage drop the indicator had experienced since 1991, when the floor price was abolished.

As expected, the pass-in rate skyrocketed, hitting 30 per cent across the country last week and even passing 50pc in Fremantle, WA, sales.

This is a pattern we've seen countless times before. Prices drop, so supply dwindles, forcing buyers to lift prices in order to entice more wool onto the market.

But this time, it's different, experts say.

They put monthly demand at between 70,000 and 80,000 bales, yet the Australian Wool Testing Authority has been testing an average of 136,000 bales a month for the past year.

That's an alarming imbalance between supply and demand, and it all adds up to a troubling equation for the wool industry.

Related reading: Wool industry in a bind as supply outdoes demand

The national stockpile is growing at about 60,000 bales a month, and it could get worse as wool producers on the east coast emerge from drought and increase production.

There's also little promising news on the demand side, with little buying interest outside China. And as COVID-19 continues to strangle economies across the globe, interest in high-end fashion and garments typically made from wool is likely to remain limited.

While the present situation has many unique circumstances, most woolgrowers have ridden this roller-coaster before, and won't be trying to get off mid-ride.

But who knows where the roller-coaster is headed next?