(January 1, 1008)  The Australian wool market hit its highest U. S. dollar price in 17 years by mid-November (ABC Rural Australia, 11/14/07). Between October and November, the market strengthened almost 1 percent as average Australia wool prices inched up to U.S. $3.96/lb. despite the weak U.S. dollar relative to the strong Australian dollar. In the 11 months through November 2007, prices were 40-percent higher year-on-year to U.S. $3.58/lb. In November, Australian wool prices averaged U.S. $3.95/lb. – 36-percent higher than November 2006.

This year, the wool market will likely be continued to be influenced by tight supplies and strong demand. There is a forecasted 7-percent decline in Australian raw wool supplies in its 2007/2008 season (Woolmark, 12/7/07). Additionally, confidence in China rebounded late last year, it is believed that the raw wool quota will be fully utilized in 2008. However, exchange rates will continue to play havoc on the wool market so volatility in prices will likely continue.

Forecasting exchange rates between the United States and Australia is a challenge due to the myriad of factors affecting rates. Energy prices influence the Australian dollar and interest rate cuts, among other factors, pressure the U.S. dollar. The A$/US$ exchange rate averaged 86.7 U.S. cents in the last quarter of 2007.  This compares with an average exchange rate of 74.8 U.S. cents and 78.5 U.S. cents in the 2005/2006 and 2006/2007 seasons, respectively.

The weak U.S. dollar against the strong Australian dollar was forecasted at 88.6 U.S. cents in 2007/2008 through the Australian season and then to fall marginally to
86 U.S. cents into the 2008/2009 season (www.woolmark.info, 11/29/07). A strong Australian dollar means that buyers that use U.S. dollars have to pay that much more for every Australian dollar.

The U.S. wool market remained quiet last November with no new prices on a clean basis reported. In November, there was some trading of greasy wool with “good demand for limited supplies,” (U.S. Department of Agriculture’s Agricultural Marketing Service, 11/16/07).

The retail outlook for wool this year is mixed. Demand in China is expected to remain high while there is a “weakening of the global economic climate for wool” in many developed countries. A strong slowdown is forecasted in Japan – the second largest consumer market for wool after China (Woolmark, 11/30/07).

The U.S. economy remained strong in 2007. With a boost in women’s wear, the U.S. retail wool apparel demand was at a seven-year high during the third quarter of 2007 (Woolmark, 11/30/07). However, consumption of U.S. wool interior products fell 2 percent through September 2007 year-on-year.

Imported Australian prices of greasy wool to the United States rose 18 percent while volumes fell by nearly 6 percent. Reports from Woolmark indicate that processors and spinners have been substituting imports for cheaper local wool, as well as moving to wool blends in an effort to stay competitive with yarn import prices.

The American Sheep Industry Association continues to have success in promoting wool overseas. Assuming the same production as last year, the United States exported 70 percent of its clip, of which 78 percent was greasy and of which 62 percent went to China (80 percent of exports to China were greasy).

U.S. wool export volumes of both wool yarn and wool fabric were relatively weak in 2007 compared to 2006. Woolmark reported that this was due to both a reduction in the U.S. manufacturing capacity and the still relatively high price of U.S. manufactured goods despite a more favorable exchange rate (11/30/07).

Total U.S. raw wool exports were up 10 percent through July 2007 from a year earlier. Unfortunately, total U.S. wool textile exports were down 13 percent through July of 2007 year-on-year with wool yarn, thread and fabric down 15 percent.