By JULIE STEPANEK SHIFLETT, PH.D.
Juniper Economic Consulting

(July 1, 2012) The global wool market hangs in the perilous balance of supply-and-demand pressures. On the supply side, production activity is considered normal and stocks have risen yet economic turmoil in Europe has stifled demand, putting downward pressure on prices (Landmark, Wool Economic Focus, 5/2012). Exchange rate fluctuations have also played a role in the current wool demand softening. Also on the supply side, Australian wool production is growing at a slower pace than the expanding flock would indicate due to a shift to more dual-purpose and meat breeds. It is forecasted that the Australian wool supplies will remain very tight in the upcoming 2012/2013 season (Landmark, Wool Economic Focus, 5/2012).

The Australian Wool Exchange’s (AWEX) Eastern Market Indicator (EMI) lost 28 percent in the 12 months to June 1, 2012. The EMI was U.S. $4.83 per lb. clean on May 31. The drop might seem significant compared to the high $6 per lb. seen a year ago, but recall that Australian wool was in the low $3 range as recent as 2009 and early 2010.

Landmark explained that weaker wool—like recent softer undertones in raw materials such as cotton, iron ore, metals and oil—has been a victim of the uncertainty plaguing the Euro-zone economies.

Australia’s falling dollar is being blamed for the wool auction’s biggest drop in nine months (ABC Rural Australia, 5/25/12). The Australian dollar weakened in May which prompted a wait-and-see approach by buyers, particularly the Chinese. If the Australian dollar weakens further, then buyers could pay even less for wool. The Australian dollar weakened against the U.S. dollar since February and fell below the symbolic $1 mark in May. The rate fell from U.S. $1.07 per Australia dollar in February to $0.99 in May.

The stronger U.S. dollar this May compared to last year can explain some of the recent weakening in U.S. wool values. The U.S. dollar strengthened because in times of global economic uncertainty, consumers want to invest in U.S. dollars, driving up its price in terms of foreign currencies. For example, an Australian dollar this May bought one U.S. dollar compared to $0.94 Australian a year ago. This means that it currently takes more foreign currency, in general, to buy $1 worth of U.S. exports. The Wall Street Journal explained, “As the global economy weakens and the dollar strengthens, U.S. companies are finding it harder to sell their goods abroad,” (6/8/12). U.S. exports declined in April for the first time since November, dropping $1.5 billion from March, or 0.8 percent, to $182.9 billion.

In the U.S. Fleece States, clean-wool trades averaged 8-percent lower from a year ago, but with a wide range of year-on-year devaluations. Twenty micron averaged 3-percent lower from a year ago and 27 micron was down 18 percent. Twenty micron averaged $5.10 per lb., 21 micron was $4.87 per lb., 22 micron was $4.61 per lb., 23 micron was $4.38 per lb., 24 micron was $4.14 per lb., 25 micron was $3.81 per lb., 26 micron was $3.38 per lb. and 27 micron was $2.78 per lb.

U.S. Territory clean wools (those in the western United States) traded an average 12-percent lower than a year ago. The market was indiscriminate between fine or coarser wools. That is, wools declined by varying percentages with no discernible pattern by micron. In the Territory States, some very fine wool traded on a clean basis for the first time this season. Sixteen micron brought $9 per lb. and 18 micron brought $7.40 per lb. (down 5-percent annually). Nineteen micron received $5.52 per lb. (down 18 percent) and 20 micron averaged $5.39 per lb. (down 8 percent).

The values of mid-micron and coarser wools were up to 32-percent lower than a year ago.  At the extremes in terms of year-on-year drop, 21 micron averaged $4.70 per lb. in May, down 11 percent year-on-year and at $3.10 per lb., 26 micron was down 32 percent. Twenty-eight micron averaged $2.54 per lb. clean, down 12 percent in a year. 

In Texas and New Mexico, wools were generally dirtier and heavier due to the drought this year. Clean-wool trades in May were an average 9-percent lower than a year ago.

Nineteen micron averaged $5.70 per lb. clean (with no trade last year in which to compare). Twenty micron was $4.84 per lb., 12-percent lower than a year ago. Twenty-one micron was $4.95 per lb., 5-percent lower. Twenty-two micron was $4.69 per lb., down 11 percent and 23 micron was $4.58 per lb., down 8 percent.

First-quarter U.S. wool exports were down both in volume and value compared to a year ago. The U.S. dollar has remained weak, promoting the competitiveness of U.S. wools, yet worldwide demand has softened from an abnormally strong year last year.

Total wool-export value through the first quarter was $4 million, down 41 percent year-on-year. Greasy-wool exports were down 14 percent year-on-year to $3.2 million. Wool-top exports were at $681,000, down 77 percent. Carded-wool exports more than doubled in value with a 118-percent jump to $181,000 in the first quarter. Lastly, degreased or scoured wool was $193,000, down 32 percent.  

Total U.S. wool exports by volume contracted 38 percent in the first quarter to 574,900 kgs. Total raw-wool exports were down 13 percent year-on-year to 495,900 kgs. Total degreased or scoured wool was down 32 percent to 34,600 kgs, carbonized wool fell 19 percent to 17,800 kgs and carded wool exports were down 86 percent to 44,400 kgs.  

Wool prices might have weakened recently and might still weaken further in coming months, but the industry is likely at a higher, sustainable price level due to renewed, expanded demand. The wool message is spreading. U.S. designer Joseph Abboud spoke at the recent International Wool Textile Organization Congress (IWTO) in New York City, “There is an ever-growing desire for those organic elements from our world that has nurtured, clothed and sheltered us from the beginning of history. What better example is there than wool—natural, renewable, sustainable.”

Peter Ackroyd, IWTO president, added at the congress: “It was pleasing to hear so many upbeat and optimistic presentations about the return of wool in floor coverings, furnishings and fashion.”