Wool back in Fashion?

It is unfortunate that this optimistic report from Rabobank about wools future has been released just after last weeks auction, where wool prices took the biggest fall in price for a while.

Indicator prices fell between 30-50cents clean and are now at levels not seen since 2010 and must create doubts from growers that last years prices can be maintained. With nearly 50% of the sale passed in it seems farmers are not happy with these prices and with income up in a better financial year, are prepared to wait for better prices.

Crossbred wool growers I speak to, are very cautious about their future investment decisions  for the promotion of wool, as years of previous failures in this area are still fresh in their minds.

It appears low stocks and a large decline in production will be the main drivers for future wool prosperity, although small niche marketing deals which sell the farms and country it is produced from, could gain some traction.

Are you as optimistic as this report, or do you view wool as a cost of producing sheep meats?

The great promise of emerging markets is beginning to crystallise for NZ wool leading to renewed optimism among growers that finally, wool may be ‘back in fashion’, according to a new industry report. The report, ‘Wool – back in fashion?’, by agribusiness banking specialist Rabobank, says while a number of challenges remain, the past year has seen global wool markets perform strongly as the supply-demand balance has tipped in favour of demand after many years of a supply overhang.

Report author, Rabobank analyst Airlie Hoskins says the structurally low level of global wool supply has created conditions for a tighter market, however new demand drivers also appear to be playing a more prominent role in global markets, adding to competition for available supplies.“Changing dynamics in global wool consumption, historically low wool supplies and wool’s improved price competitiveness relative to cotton and man-made fibres have resulted in above-average levels for wool prices over the past year,” she says.

NZ wool production has fallen to historically low levels, particularly as a result of a sharp decline in the national sheep flock in recent years, Ms Hoskins says.The Rabobank report shows that total raw wool exports from NZ declined by approximately 8 per cent from July to January 2011/12 (clean weight) compared with exports for the same period last year.

Ms Hoskins says global macroeconomic uncertainty and the historically high value of the NZ dollar against the US  have weighed on demand this season.“Demand from China – the predominant export destination – remains strong, with exports to China increasing by 15 per cent from July 2011 to January 2012, and accounting for almost half of NZ's’s total wool exports so far this season.” By contrast, exports to the EU have been weaker, falling by 15 per cent year-on-year, as the impact of the sovereign debt crisis begins to take its toll on textile retail sales.”

Globally, Ms Hoskins says, historically low wool supplies are expected to continue to support the NZ wool market above long-term average levels in the foreseeable future, although the high level of the NZ dollar is expected to take some of “the shine off” the market going forward.“Any longer term recovery in production will likely be challenged by competing demand from other farming enterprises.”

Ms Hoskins says the demand outlook for wool has softened in the 2011/12 season in line with the fragile economic environment in many of the main wool-consuming countries. Overall, she says, “A sustained period of elevated profitability will be required to sway NZ farmers to return to the fold, however the great potential of emerging markets is likely to deliver promising opportunities, provided the necessary investment in innovation and marketing is made to secure them”.