Wool production has come under downward pressure due to dry seasonal conditions, particularly in Victoria and South Australia over the past 12 months, along with relatively low prices compared to meat and rising shearing costs. This article explores how wool prices are responding to the reduced supply.
At the risk of repetition, wool is an industrial commodity, with a long supply chain, meaning its general price level is driven by demand from the major economies of the world. Grain, oilseeds and meat are agricultural commodities where the balance of supply and demand is a more important and immediate driver of price, with a shorter supply chain. Given this background, expecting wool prices to rise substantially while the major economies of the world struggle (especially China and Europe) is an exercise in disappointment.
Wool is one group of apparel fibres amongst a much larger market of fibres (136 million tonnes). Different sections of the wool complex have varying relationships to other fibres, with a general rule being that the broader the wool, the greater the connection to synthetic staple fibres (see more here). The staple fibre group (wool, other animal fibres, linen, cotton, polyester, acrylic and viscose) tend to react to common macroeconomic signals, having similar rising and falling cycles except where some factor peculiar to a fibre pushes that fibre out of line.
Figure 1 shows the relationship between merino wool and a weighted average price for cotton, polyester, acrylic and viscose (NWSF – non wool staple fibres) for the past two decades and nominal Australian dollar terms. Merino prices outperformed in 2017-2019, as did the NWSF in 2010-2011 (driven mainly by cotton). Since the pandemic dip in price in 2020, merino and NWSF have moved closely together, until the current season. In 2024-25, the merino price has managed to increase while the NWSF has tended to be lower. The price ratio for merino (the average merino fibre diameter, MPG) has risen from around six to seven. Lower supply has been working, pushing the wool price up relative to the general level of the major staple fibres.
Figure 2 compares the rolling 12-month change (3-month smoothed) in the merino and NWSF in Australian dollar terms. This shows more clearly the common price movements the two series often share.
Figure 3 repeats Figure 2 in US dollar terms, where the positive correlation between the two series is quite high. From a supply chain perspective, this is how the merino market will be viewed. While merino (and crossbred) wool prices are unexciting, they are unexciting in line with the major staple fibres.
What does it mean?
Changes in supply in the wool market are generally expressed by changes in relative prices (think of micron premiums or vegetable matter discounts as good examples), and the current market is no exception. Lower supply is helping push the relative price of wool up, but it cannot start a rising price cycle on its own; it needs the general staple fibre complex to rise as well, which needs strong economic growth delivering better demand. As one clear thinker in the wool and sheep industry says, relying on price to solve the issue of underperformance (underinvestment) in productivity is not going to work. Does the grain industry rely on price to drive its profitability?
Key Points
- The average merino fibre diameter price has moved in lockstep with the major staple fibres since 2020. The current downturn in price is common across the staple fibres.
- Lower supply for merino wool does seem to have had an impact this season by increasing the price ratio for merino to the NWSF price (from six to seven).
- A general upturn in the major economies is required to underpin a rising price cycle for apparel fibres.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: Mecardo, AWEX, RBA, Emerging Markets, Fibre Year, ICS
