Wool consumption or production driving changes in supply?

Discussion of wool consumption is something of a chicken and egg conundrum with regards to supply, what comes first, the production or the consumption? With this in mind, let’s take a look at long-term wool consumption.

In this analysis consumption data is used where available otherwise production data is used as a proxy for consumption. As a general rule production is a good proxy for demand, except in rare cases such as the collapse of the USSR where a large section of demand for broad merino wool virtually disappeared overnight (and the Russians ate their sheep flock).

The wool industry does a good line in nostalgia, as its importance as an apparel fibre, has been falling (along with linen) for the past three hundred years. By the mid-19th century, cotton had overtaken wool and linen in terms of market share, and through the 20th and into the 21st century synthetic fibres have grown to take the lead. For the best very long-term graphics on apparel fibre market share (extending back to the 18th century) contact the IWTO and request a copy of a presentation made by David Buck from around 2002, (link here) it is fascinating. So, the fall in market share (smaller consumption per capita) seen in recent decades or since the mid-20th century is nothing new.

Figure 1 shows IWTO estimates of world wool production (broken into three-micron groups) since 1990. Volume falls steadily from 1990 through to around 2010 and then stabilises. In that time since 2010, the world supply of staple fibres has risen from 49 million tons to around 60 million tons (not quite half of total fibre production of 130 million tons), so wool continues its long-term trend of shrinking production/consumption per capita.

However, ‘wools ain’t wools’. The term wool covers a fibre diameter range of 10 to 40 plus micron. Within the wool complex, there are varying trends with regards to production/consumption. Figure 2 contrasts two-micron categories with a vastly different recent history. It shows the Australian production volume (in farm bales) for the 23 and 17 micron categories from the early 1980s to last season. The 23-micron category started the 1980s with around 400,000 bales, peaked in 1990 at over 1 million bales, returned to around the 400,000 bale level in the 1990s, and then collapsed between 2000 and 2003, before continuing to trend lower in the following two decades. In contrast, the 17-micron category supply (and demand) has been trending upward for three decades.

Table 1 shows the proportion change by micron category in Australian volumes between last season and the 1989-90 season, as well as the 1983-84 season (before the influence of the Reserve Price Scheme on the late 1980s supply). 19 micron and finer volumes are well up on the earlier volumes while broader merino volumes have fallen by 90% plus and crossbreds by 30-50%. The point here is that parts of the wool clip have grown, and parts have shrunk, leaving a smaller, finer merino clip in place.

With the annual world staple fibre market of around 60 million tons, there is room for a small 400,000 farm bales of 23-micron wool (only 48,000 tons). The question will be price. Figure 3 shows the Australian 23-micron wool supply (in farm bales) and the ratio of the 23-micron price to a non-wool staple fibre price (a weighted average of cotton, polyester, acrylic and viscose). In the early 1980s, the ratio was 2.7. In 1989, despite the increase in volume, it had risen to 5 (when exporters in Europe would sell 1000 bale parcels of 23 micron overnight to the USSR and then send the order back to Australian auctions). Without the USSR the ratio fell back to below 3 in 1991 and then spent the 1990s ranging between 2.3 and 2.9. As supply collapsed in 2000-2003, the price ratio started to rise, trending higher as supply trends lower in the coming decades.  Now, back to selling 400,000 bales of 23-micron wool in the current market.

History tells us the market will buy this wool at a ratio of around 2.7 to the non-wool staple fibre price, which is currently around AUD227 cents, yielding a price of AUD614 cents for the 23-micron at this ratio. Arguably there is likely to be demand for 23-micron at this price level but there is no supply, as the price is unworkable at the farm level.

What does it mean?

Not all wool categories have followed the path of falling supply in recent decades. Even for the categories of wool where supply has collapsed, demand does not look to be a constraining factor on the wool market, it is more the price level for greasy wool (at which farm returns are acceptable) which is the constraining factor of production.

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Key Points

  • Wool consumption as a proportion of total fibre consumption has been falling for the past three centuries, as a growing population seeks expanded sources of fibre.
  • ‘Wools ain’t wools’ – not all categories of wool have shrunk in recent decades, with 19 micron and finer categories increasing in volume.
  • The potential for wool consumption does not seem to be a limiting factor given the staple fibre market in total is around 60 million tons per year and total wool production (everything included) is around one million tons. The limit on consumption is the volume grown.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: AWC, AWEX, IWTO, The Fibre Year, Emerging Textiles, ICS, Mecardo

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