Wool prices have finally made their move, defying conflicts and a stronger Aussie dollar to post fresh eight-year highs last week. The sheep flock in general has been in decline, with Merino’s bearing the brunt of the falls. Here we take a high-level snapshot and see whether we are in for flock growth.
The wool market is a particularly cyclical beast. As outlined in Andrew Woods excellent article on cyclical price peaks (Article available here) prices were always going to rise from the doldrums of 2023-2025, although the pace of this rise has been more rapid than normal.
The funny thing about the wool market is that everyone seemed to think that wool prices were going to rally, and rally hard at some stage. For some reason buyers didn’t build stocks, and sellers kept selling. I guess if you’re a wool grower there is always more wool coming, and cash is king, especially during the extreme dry many wool producers have been experiencing for the last two years.
Figure 1 is a chart we like to publish periodically to give a very broad overview of how merino enterprises are faring relative to lamb. There is plenty of crossover in this space, but the relative prices of merino wool and crossbred lambs can swing breeding decisions season to season and enterprises over the medium and long term.
The 19 Micron Price Guide (MPG) currently sits at almost exactly double the Eastern States Trade Lamb Indicator (ESTLI). Just before this wool rally began last August the 19 MPG was at just a 24% premium to the ESTLI. The last time we saw the 19 MPG at these levels it was 3.5 times the ESTLI.
Thanks to the strong wool prices of 2017-2019, there was some growth in merino numbers, but five years of post-Covid price pain, and relatively strong lamb prices, has further diminished the flock.
Next seasons joining decisions won’t start being locked in until much later in the year, and history tells us more than one year of strong wool prices will be required to bring confidence back.
What does it mean?
No doubt a rally in merino wool prices is welcome, but it still not at a level which is going to see wool enterprises expand rapidly or take ground from crossbred sheep. Perhaps this cycle will be different, and we are in for a sustained period of strong wool prices. History says otherwise, and economic clouds don’t add a lot of confidence.
Key Points
- Relative prices of merino wool and crossbred lambs can swing breeding decisions
- Seasonal conditions, strong Lamb prices and low wool prices post covid have diminished the flock
- Current high wool prices will need to be sustained to renew producer confidence
Click on figure to expand
Click on figure to expand
Data sources: MLA, AWEX, Mecardo
