Competitor crossbred stocks piled high-revision

Sheep in an Australian field in rural NSW on a foggy morning

An article in the Rio Times from the middle of 2023 caught the eye recently as it put a number on wool stocks in Uruguay. It was a large number, 40 million kg of coarse (crossbred) wool which is effectively twice its annual wool production. However, the situation is different in Uruguay due to early-stage processing still being in operation with sizeable annual imports of greasy wool. The article on this topic published earlier this week received some feedback out of Uruguay which this revision looks to accommodate.

There has been persistent feedback about grower stocks building in South America as crossbred wool continues to trade at depressed levels. When talking crossbred in this case it is the mid-microns 26-32 microns, not the broader micron categories which is more pertinent to New Zealand and the UK (read more here). The Rio Times article (read here) quoted the Uruguayan Wool Secretariat (SUL) which is a very credible source. In the article, they describe Uruguayan farmers beginning to store wool in 2018 as prices came off the cyclical highs. There is not much argument about the build-up of stocks, but the 40 million kg total for Uruguay has been strongly challenged.

For this revision, we look at the difference between Uruguayan wool exports and the total sum of imports plus production. Figure 1 shows the annual (season) wool exports less wool imports and wool production. Wool imports are taken into account as Uruguay still has a sizeable wool combing capacity and draws wool in from neighbouring countries. In the schematic, we are looking for exports to fall well below import/production in years of weak prices. This fits with 2008/2009 (financial crisis) and then from 2019/2020 as prices at first cycled downwards with apparel fibres generally and then were hit in 2020 with the pandemic effect. Since 2019/2020 exports have been 28 million kg greasy below imports/production implying stocks have increased in this order of magnitude. We don’t know for sure what the stock level is in Uruguay, however, it seems to be a fair assumption that it is high by pre-2019 levels.

In Argentina, the FLA https://www.flasite.com/index.php/es/ reported stocks have risen as well in recent years from around 35 million kg greasy to 54.6 million kg as of mid-2023 (up 20 million kg) (read more here). Figure 2 shows the annual reported wool carry-on by the FLA broken into three-micron groups. Argentina tends to report a high level of stock normally, so it is the difference between 2019 and 2023 that we are interested in. Some two-thirds of the increase since 2019 has been 24.5 microns and broader wool.

What does it mean?

South American stocks of crossbred wool are high as the calculations in this article show, which match up with feedback from recent years. Stocks act as a dampener on price as the merino market experienced during the 1990s. They do not stop prices from rising but will cap levels prices can rise to. The big gap between merino and crossbred prices we see in the market will not close back to “normal” levels until the stock level is under control (much less).In periods of weak demand stocks help to push prices down quite quickly.

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Key Points

  • Uruguay has built stocks, which will be predominantly crossbred wool, since 2019.
  • Argentina is reported to have increased stock levels by 20 million kg greasy in recent years, with two-thirds of this increase 24.5 micron and broader.
  • By way of comparison the Australian crossbred clip in 2022/23 was around 63 million kg greasy.

Click on figure to expand

Click on figure to expand

Data sources: SUL, FLA, IWTO, Delta Consulting, Rio Times, ICS, Mecardo

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