The focus of our analysis will be on eastern Australia. In Western Australia AWTA core test volumes are running ahead of year earlier volumes for 2022 to date. Various median articles mentioning the delayed wool volumes in eastern Australia typically portray the wool arriving into auction like a tsunami with the perceived wisdom that this will push prices downwards. There are two parts to this scenario. Firstly the volume of the delayed wool and secondly how the wool flows into the market.
Figure 1 shows the monthly AWTA core test volumes for eastern Australia from January to November 2022 (bars) along with the cumulative year on year change in farm bales tested (line). By August the cumulative volume was minus 8000 bales, a small volume. For our purposes the year on year change in volume effectively starts in August. By November the cumulative variation was minus 50,000 bales, which equates to 12% of the September to November 2021 volume presumably yet to be tested by the AWTA. This assumes there is no change in wool production year on year – more on that later.
So, what does 50,000 bales of wool look like to the market? As a block it is an extra week of sales. However it is likely that not all of this wool will flow immediately onto the market, especially if prices wobble or weaken. If it was spread over December to April sales, it would represent an extra 8% of volume on top of year earlier volumes or around 2,700 extra bales per week.
The Australian Wool Production Forecasting Committee is calling a 4.9% increase in production this season (2022-23). Over the 11 months to November every 1% increase in eastern production equates to around 14,000 farm bales. In theory an extra 4.9% of wool would equate to 70,000 farm bales still floating around in the system, yet to be received into store and tested. It seems likely there will be some extra wool from increased production, above the 50,000 bales estimated above, but some albeit limited feedback does not support another 70,000 bales to total 120,000 farm bales ready to come into store in eastern Australia.
What does it mean?
There will be some delayed wool arriving into sale during the next 3-4 months, adding to sales volumes. In a time of weak demand this will put some downward pressure on price but growers have demonstrated their willingness to reduce volumes cleared to the trade if prices fall, thereby steadying the market. Grower stocks of greasy wool are likely to build as a consequence, buy these remain at modest levels (we think, as no one reports on them in Australia).
- At this stage using year earlier AWTA volumes as a guide there is at least 50,000 farm bales which have been delayed from delivery to store for various reasons.
- This volume of wool would equate to an extra 2,700 bales per week across sales from December through to April.
- Increased production will probably add to the total of delayed wool, but the volume from this source is uncertain.
Click on figure to expand
Data sources: AWTA, ICS