The following graph shows the AWEX Eastern Market indicator (EMI) in cents per kilogram clean, from August 2009 to date.
The fall in the AWEX EMI has continued since the previous newsletter in April 2019, with the current price at 1,715c/kg clean. This is a further reduction in price of 228c/kg or 12% since April 2019.
The most significant cause of the softening price is due to poor economic conditions globally, but particularly in China and Europe where most exports are destined.
As the price of wool has significantly increased since 2015, woollen garments have become a luxury item, with many middle income earners not able to afford the number of garments they may have had previously.
This has slowed retail sales. Also, the large quantity of low yield and tender wool resulting from drought conditions on offer, has reduced the willingness of buyers to pay the premium that they have for the past 12 months.
Wool production forecasts are suggesting that wool production will be 4.5% down during 2019/20 (assuming average seasonal conditions), as producers continue to destock. This long-term reduction in wool supply, would indicate that the price for good quality wool should remain robust into the near future.
With the EMI at 1,715c/kg clean, this should result in net average returns to many clients with Merino clips, of around $10.30/kg greasy. This would produce a return of $62/head net for sheep cutting 6.0 kg/head greasy.
This price of $10.30/kg net compares with the average budgeted Break Even Price for clients in 2019 of $7.10/kg and that for the top 20% of $4.93/kg, providing a significant profit margin.