Wool Market Update (October 2019)

The following graph shows the AWEX Eastern Market indicator (EMI) in cents per kilogram clean, from 2009 to date.

Since the last newsletter the wool market has experienced extreme volatility, not seen in the previous 10 years. As has been widely publicised, the AWEX EMI fell rapidly during August to reach a low of 1,365 c/kg clean at the beginning of September. This fall in August was almost offset by a mirror image rise in prices during September to 1,609 c/kg clean.

The trajectory of future prices remains unclear, with continued volatility the most likely outcome. The ongoing poor economic outlook globally will most likely hamper the return of prices to the levels experienced in 2018. This contraction in global demand for wool, particularly for finer microns, has been and will continue to be offset by the reduced wool supply caused by drought and the contraction in the merino sheep population.

With the EMI currently sitting at 1,511c/kg clean, this should result in net average returns to many clients with Merino clips, of around $9.82/kg greasy. This would produce a return of $59/head net for sheep cutting 6.0 kg/head greasy.

This price of $9.82/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 $4.92/kg, providing a significant profit margin. However, this margin has contracted significantly in the last 12 months. Wool growers will need to remain focused on minimising costs to ensure that wool remains profitable at long-term average prices, particularly as drought conditions worsen.