AWI – July Monthly Report takes a look at Australia wool prices going forward.

The report says at the end of July, prior to a three-week recess, Australia’s wool market closed on a positive note with the benchmark Eastern Market Indicator (EMI) rising 17 cents. This was the second highest weekly gain for the year-to-date, brought about mainly by currency movement trending downwards allowing for some strong purchasing from Chinese indent buyers. Japan also re-entered the market with support directed at processed wool types and nonmulesed wools.

But it’s no secret wool prices aren’t where industry and more importantly, woolgrowers, want them to be. It certainly feels like we have been treading water for a long time with challenging conditions in both the economic and climatic spaces playing havoc with returns for woolgrowers. But like any economic cycle, it will turn around, eventually. Before the pre-recess hike, the market declined 63c over the preceding five weeks. At 1,124c/kg, the EMI sat 4.7 per cent lower year-on-year and trailed the five-year average by 12.8pc.

As an industrial commodity, the price of wool depends greatly on the strength of demand. Demand is driven by economic growth in the major economies. In contrast, other agricultural commodities such as sheep meat and wheat, sees fluctuations in supply drive fluctuations in price. But as we view the world economically at present, it is struggling. Therefore, low Merino wool prices are consistent with struggling performance of major economies.

Jumping ahead, the wool market isn’t expected to make any great gains when auctions re-open in August. In fact, wool prices are anticipated to remain subdued and track below average levels, despite a predicted tightening in supply. Recent months have demonstrated this with the market remaining stubbornly restrained even as supply declined. An increase in sheep turn-off in the past 12 months will see fewer sheep shorn in 2024/25. Dry conditions affecting major sheep regions in 2024 could also see lighter wool cuts. As a result, wool production is expected to decline further following a 3.8pc in the 2023/24 season.

But according to industry specialists even a reduced wool supply in the coming months is not expected to sufficiently offset weak demand as the economic challenges for consumers in key markets of China, Europe and the US are not looking like easing. This leaves the primary driver of any change in wool price up to currency movements. A lower Australian dollar, currently around 65 USc is favourable for wool prices.

Fast forward 12 months, and as mentioned before, wool is an industrial commodity. According to industry analysts, industrial commodity prices have eased since 2022, to varying degrees, as economic growth slowed. But at some stage, the economic cycle will turn for the better and there is confidence the wool prices will pick up consequently.

Source: AWI