Greasy wool prices have increased markedly this season, in the absence of any substantial improvement in macroeconomic indicators or major apparel fibre prices, the usual proxies for demand. This article takes a look at the epicentre of falling Australian wool production in the 20–22 micron range, in terms of supply, price, and the price ratio to the major non-wool staple fibres.
Sheep numbers, and through that wool supply, continue to be under downward pressure. This is a familiar trend of the past three decades, with Merino clips both shrinking in size and reducing in average fibre diameter. Figure 1 shows annual Australian auction volumes for 20–22 micron wool and the corresponding average price for all wool sold in these micron categories. The price series is shown in deflated US dollar terms, as this reflects the price level and changes as the supply chain generally sees the market.
The 20–22 micron price shows a slightly rising trend from the mid-1990s to 2010, when it jumps to a higher level through to 2020 and the pandemic. The four to five years following the pandemic were a period of low prices, especially given the continued downtrend in volume. The correlation between price and volume is relatively weak, with volume accounting for around 30% of the price movement shown in Figure 1.
Wool prices do not operate in a vacuum, but within a complex of many fibres. Figure 2 takes the price series from Figure 1 and expresses it as a ratio of a weighted average price of cotton, polyester, acrylic, and viscose, referred to as non-wool staple fibres (NWSF). In this graphic, the downward trend in volume is accompanied by a rising trend in the price ratio, until the pandemic disrupted the relationship significantly. The rising trend recommenced in 2022–23, albeit at a lower level, and has persisted since as supply has weakened. Viewed this way, volume accounts for nearly two thirds of the change in the price ratio. As volume falls, the relative price of broader Merino wool to non-wool staple fibre prices rises.
Where does this leave broad Merino prices at present? Figure 3 shows the monthly price ratio for 20–22 micron wool to the NWSF from 2006 through to January. In January, the price ratio was close to the high reached in 2018, around 9, with the season-to-date ratio still running around 7. The ratio is high because volume is low. Volume cannot lift until seasonal conditions support a broader clip and help stabilise sheep numbers.
What does it mean?
The interaction between wool and other fibre prices “muddies the water” when looking at the relationship between supply and price. For broad merino wool it is clear that as supply has fallen the price ratio to the major apparel fibres has risen, albeit with some volatility most notable around the pandemic. Given current supply is at extreme lows, it seem likely the price ratio is set to reach new levels above the highs of 2018-2019.
Key Points
- Lower supply is pushing the price ratio for broader merino wool higher.
- The price ratio for 20-22 micron wool has returned to be near the 2018 peak, with supply down by around 40% from then.
- No respite in terms of increased wool supply is likely in the next six months.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: AWEX, RBA, Fibre Year, Emerging Textiles, ICS, Mecardo
