Wool prices diverge away from broader world commodity price trends

Tue, 02 Aug 2011 07:50:00 GMT

By Chris Wilcox, Executive Director, National Council of Wool Selling Brokers of Australia

Wool has been the star performer in world commodity markets in recent months. While the wool market is in recess, wool prices prior to the recess were well above year earlier levels in both A$ and US$ terms. In contrast, world commodity prices have dipped as global economic uncertainty has gripped the market for a wide range of commodities, from metals and other industrial products through to food and non-food agricultural products.

With regards to the trends in world commodity prices and in wool since the mid-1990s, wool price trends have typically followed a similar pattern to prices for other commodities. Up until the past few months, there have been two partial exceptions to this. First, in 2002/03 when wool prices spiked by much more than the increase in other commodity prices in response to the sell-off of the wool stockpile. Then, in 2004 when wool prices were mostly flat even though prices for other commodities lifted. This was probably a reaction to the 2002 spike.

The current divergence is different to those two periods. The current surge in wool prices comes at the same time that other commodity prices have fallen below or back to year earlier levels. This is no doubt partly due to the shortage of wool but has also come as the result of continuing solid demand from mills. This brings hope that wool prices can defy the current global uncertainty and be sustained into the 2011/12 season.

The reversal in the prospects for other agricultural commodities has been quite sharp. In April, Rabobank’s Food and Agribusiness Research and Advisory Group’s outlook for the subsequent three months was “bullish” for seven of the eight agricultural commodities that they follow (including wheat, cotton and corn). In their latest monthly assessment, they are “bearish” for six of the eight commodities. They are notably bearish on wheat and corn, although very dry conditions in the US are causing unease. Their views of cotton are interesting, considering the fall in cotton prices in recent weeks.

They say that “cotton prices have fallen too far given a tight supply forecast and poor US crop conditions”. As a result, they are leaning towards being bullish on cotton prices over the next three months which, if prices do lift, is a positive for wool prices.

Purebred Merino joinings need to rise

I attended the meeting of the MLA Lamb Forecasting Committee last week. It was an interesting discussion, with MLA presenting the results of their latest national sheep and wool producer survey (which is conducted jointly with AWI) and some updates on their outlook for lamb and sheep supply and demand. There were a couple of the key pieces of information for wool from the meeting.

First, the proportion of Merino ewes being joined to Merino rams was at 54% in the latest survey (it was 53% in the February survey). The fact that it is steady at that level is positive for wool as it suggests that there hasn’t been a continued move away from Merino X Merino joinings. But, the proportion could be too low to sustain the number of Merino ewes in the flock. I estimate that to maintain the Merino ewe base, there needs to be around 60% or a bit more of Merino X Merino joining (allowing for lamb and sheep deaths and culling of Merino ewes).

Second, MLA has lifted its estimate of opening sheep numbers as at 30th June 2011 (ie the start of the 2011/12 season) to 70.9 million head because lamb and sheep slaughterings for 2010/11 were much lower than previously expected as producers are seeking to retain lambs and sheep to rebuild their flocks. This 70.9 million sheep is an increase on the 68.1 million head at 30th June 2010 reported by ABS. This higher number of sheep will influence the forecast for wool production in 2011/12 and is likely to mean that wool production will be higher than previously thought. The Australian Wool Production Forecasting Committee is meeting next tomorrow (3rd August) to consider its estimate for 2010/11 and its forecast for 2011/12.

Welcome to the Why Merino? Blog

Thu, 07 Jul 2011 06:30:00 GMT

Welcome to the Why Merino? Blog!

We're really excited to have launched the new Why Merino? Conference website, ahead of our second annual conference, to be held at Dubbo on August 23 and 24.

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