|Strong Price Gains in Australian Wool Market
(March 1, 2007) Wool prices strengthened in Australia during January and even held during Australia’s largest sale toward the end of the month; however, trading was limited in January in the United States. Higher wool prices overseas sparked an interest in forward contracting in the United States by wool growers and warehouses (U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service (AMS), 2/2/07). Sellers might want to lock in prices for spring shearing before prices drop. However, buyers were reluctant to enter forward contracts, waiting for some price stabilization (USDA/AMS, 1/26/07).
Overall, “the wool textile industry is experiencing the best conditions it has seen in the last five years,” according to Chris Wilcox, chief economist with The Woolmark Co. (American Sheep Industry Association (ASI), ASI Weekly, 2/2/07).
As for the outlook, Wilcox said, “While high wool prices are likely to continue into 2007, ranging at or near long-term highs, economic indicators for wool are weakening a little, and wool's price competitiveness against synthetics is declining,” (ASI, ASI Weekly, 2/2/07).
Between early October 2006 and the end of January, the Australian Eastern Market Indicator increased 27 percent in Australian dollars and 31 percent in U.S. dollars (Woolmark, 2007). For the most part, wool prices in Australian dollars and U.S. dollars move together; however, exchange rate movements can affect price levels in the respective currencies.
There was little activity in the domestic wool market between December and January. Roughly one-half million lbs. of wool was sold on a clean basis in January.
In the Fleece States, 29 micron remained steady at $1/lb. In the Territory States, 18 micron jumped 9 percent to $2.282/lb., 19 micron gained 4 percent to $2.55/lb., 20 micron fell 5 percent to $2.08/lb., 21 micron fell 8 percent to $1.86/lb. and 22 micron fell 15 percent to $1.86/lb. In Texas and New Mexico, 18 micron fell 2 percent to $2.57/lb.
In 2006, the value of wool production in the United States was $24.4 million, down 7 percent from $26.3 million (USDA/NASS, 1/2007). The lower value was due to both lower production levels as well as lower prices. Shorn wool production in the United States during 2006 was 36 million lbs., down 3 percent from 2005 (USDA/NASS, 1/2007). Sheep and lambs shorn totaled 4.85 million head, down 4 percent from 2005. The average price paid for wool in 2005 was $0.70/lb., compared to $0.68/lb. in 2006.
In 2007, domestic wool production might be lower, but prices might be higher. Wilcox sees opportunities for U.S. wool as the supply from Australia declines and the demand for all wool types, especially medium-micron wool, increases (ASI, ASI Weekly, 2/2/07).
Wilcox reported, “With increased casualization and consumers' price sensitivity, he sees a need to educate the general public on the advantages of wool in order to maintain and grow the market share. The largest, wool-apparel retail sales markets in the world are in China, the United States and Japan, respectively.”
Italy is also an important wool apparel importer, but it is increasingly purchasing the higher-quality wool products.
In the 10 years, 1996 to 2005, greasy wool production fell by 25 percent in Australia, 17 percent in New Zealand but only 9 percent worldwide (FAOSTAT, accessed 2/6/07). Thus, the relative share of worldwide wool production by other countries increased. Since 2000, total world fine-wool production fell by 17 percent, 3 percent for medium wool and 1 percent for coarse wool (calculated from Woolmark, 2/07). Thus, finer wools out of Texas and New Mexico may have an increased advantage. Production of medium wools worldwide remains about half the level of both fine and coarse wools. The weak dollar coupled with relative increased market share of U.S. wool sets the stage for favorable competitive conditions for the U.S. market in 2007.