3 September, 2020
Bleak outlook for wool market
THE NATIONAL Australia Bank has this week forecasted a bleak outlook for Australian wool, with the Eastern Market Indicator losing around 46 per cent of its value on a monthly average basis since September 2018.
NAB’s Wool in Focus report released on Monday said while there had been a correction to the market in 2019, Covid-19 had evaporated consumer demand and industrial production this year.
NAB Agribusiness Economist, Phin Ziebell, said Chinese buying activity, which had already fallen prior to Covid-19, had been further impacted by the pandemic.
“Australia exports 75 to 80 per cent of its wool to China,” Mr Ziebell said.
“However Chinese wool and cotton imports were down 43 and 25 per cent respectively on a year-on-year basis in June. With alternative fibre prices subdued, wool will likely remain under pressure.”
Last week the Australian Wool Exchange Eastern Market Indicator fell 128 cents a kilogram to finish at 1006 c/kg.
This equated to a fall of 11.3 per cent, making it the highest weekly EMI fall since the reserve floor price was abolished in 1991 and the EMI fell by 39.1 per cent.
Mr Ziebell said a number of long-term factors, combined with drought conditions in Eastern Australia, meant the rally in wool prices that began around four years ago was not matched by higher production.
“In addition, we’ve seen a move away from mixed farming to cropping-only enterprises,” Mr Ziebell said. “We have also seen many remaining sheep producers have transitioned to crossbreeds for fat lamb production due to high lamb prices.”
Last week there were price falls upwards of 140c/ kg across all fleece wool, while crossbred wool lost more than 35c/kg.
Mecardo Managing Director, Robert Herrman, said of the 42,764 bales offered across wool auctions in Sydney, Melbourne and Fremantle, 30 per cent were passed in at auction.
Mr Herrman said the high pass-in rate came as many growers were not willing to accept reduced prices for their wool clip.
“It has been more than a decade since stockpiles reached current levels,” Mr Herrman said.
“Some estimates pitch the stockpile at about 300,000 stored in warehouses and farm sheds across the nation.”
Mr Mecardo said it was unlikely demand would improve enough to absorb this, given the Covid-19 situation.
“The past 10 years we’ve comfortably traded to the world about two million bales,” Mr Herrman said.
“If we start hanging onto almost 2.5 million — and we’re talking fresh shorn wool plus wool sitting in broker’s stores — that’s got to be somehow absorbed.
“We now need to find new markets for it.”
Mr Ziebell said NAB predicted a limited upside for Australian wool prices, stating the EMI would sit around $10 per kilogram this year and $12 per kilogram in 2021.
“As the global economy faces its sharpest downturn in decades, a recovery is possible, but increasingly difficult to sustain with Covid-19 reducing the ability of consumers to make discretionary purchases,” Mr Ziebell said.
“Chinese consumers are also remaining cautious, so forthcoming export demand is uncertain.”
The Australian wool market is now 670c/kg cheaper than this time last year.