Auction sales volumes and AWTA core test volumes are running well ahead of this time last season. Shearing and delivery of wool to store has been relatively unhindered by wet weather and low sheep meat prices encourage wool selling. With this in mind, it's time to investigate changes in price, volume, and gross sales value for some key micron categories in the greasy wool market.
October AWTA core test volumes were higher by a large proportion (15.1%) compared to October 2022, with all major categories except 21-22 micron following the trend. Given the increased sheep offtake it is not extra sheep driving the increase nor is it clean fleece weights as fibre diameter is falling for both merino and adult crossbred wool, so it is a function of conditions allowing shearing to be well ahead of a year ago. Auction sales are fully reflecting this surge in wool coming into store.
Figure 1 shows the year-on-year change in Australian AWTA core test volumes by micron category for October and the three months to October for 15 micron and broader wool. The 21-22 micron categories stand out as the categories bucking the general rising trend by falling substantially (20 micron is down marginally for October). Crossbred volumes are also well up on year-earlier levels. Given the greasy wool market is working its way through a period of weak demand (as are apparel fibres generally) increased supply is likely to put downward pressure on prices.
In Figure 2, we can see the season to date (July to October) the year-on-year change in volume, gross sales value, and average price for 16-18 micron wool sold at auction in Australia, in both Australian (AUD) and US (USD) dollar terms. The graph shows an interesting view with volume up 22% (in clean terms), gross sales down by 8% in US dollar terms (4% in AUD terms), and average price down by 25% in USD terms (22% in AUD terms). A fall in the gross sales value of 8% fits with the background of weak demand and quality will also play a minor role in the average price. Overall, though, volume is well up and price has fallen by a similar proportion with the supply chain spending slightly less in gross sales value. The fall in the average price is a reflection of the fall in fine micron premiums.
The view for 20-22 micron wool as shown in Figure 3 reveals a different story. Supply is up by 1% for the season to date, gross sales value is down by around 9% in USD (similar to the fall in the 16-18 micron gross sale value) and the average price is down by 10% USD (year on year). The picture presented in Figure 3 looks like an effectively unchanged volume with weaker demand allowing prices to ease.
Finally, Figure 4 looks at crossbred wool (admittedly a wide range of wool types). For crossbred demand has picked up with the gross sales value up by 4% in USD (boosted to 8% by the lower Australian dollar) but supply has picked up by 18% so the price is down 12% (USD).
What does it mean?
Supply chain expenditure on merino wool looks to be lower this season which fits with a supply chain struggling with weak demand and waiting for positive signals from the retail sector. The underlying demand for crossbred wool has picked up which is good news, as have prices since mid-year, but increased volumes are pushing prices downwards.
The recent surge in wool tested by the AWTA and subsequent auction sales will peter out by Christmas and in the second half of the season we will see lower overall supply year on year which will help price levels, except for fine merino premiums which will continue to struggle with increased supply due to a finer clip.
Key Points
- Increased fine merino volumes have put downward pressure on prices (or more specifically premiums) for these categories this season.
- For broader merino wool demand, as measured by gross sales value, has weakened this season compared to the same period last season so prices have weakened with effectively unchanged volume.
- Crossbred demand in terms of gross sales value has improved but volume sold is well up and putting downward pressure on price.
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Data sources: AWTO, AWI,AWEX, ICS, Mecardo
