Wool Market Update (May 2022)

The following graph shows the AWEX Eastern Market indicator (EMI) in cents per kilogram clean, from 2014 to date.

Wool traders are continuing to experience significant issues exporting wool, as the supply chain is impacted by COVID-19 restrictions, particularly in China, where lockdowns in Shanghai and wool processing provinces, reduce the ability to transport and process wool. In addition, fewer ships are docking at Australian ports, turn-around times have been extended, fewer shipping containers are available, plus the time wool is in transit has significantly increased. All these factors increase the costs and risk for traders, which has reduced their ability to pay higher prices.

The current wool market has been relatively stable since late last year, as the EMI fluctuated between 1,300-1,450 c/kg clean, with the current EMI sitting at 1,401c/kg clean. The price outlook is uncertain with both Chinese economic growth and COVID-19 management strategies impacting demand, while volatility in the global economy may see significant movements in the AUD/USD exchange rate, which will also have a large impact on domestic prices.

Wool supply is forecast to increase during the 2022/23 season, due to increased sheep numbers as well as an increase in wool cut per head. Sheep numbers are also expected to increase by 2.8% in 2022/23, which is on top of the 3.1% increase the previous season, indicating that the national flock rebuild is well underway. The excellent seasonal conditions throughout Australia, have led to a forecast increase in wool cut per head of 3.2% during 2021/22, as well as increases in staple strength and length compared to the previous season. With positive seasonal conditions predicted to continue, AWI is forecasting an additional 2.5% increase in wool cut per head in 2022/23.

The current 10 year Decile wool prices by micron and 12 month price change can be seen in the following graphs published by Profarmer. As the graphs below show, there continues to be a significant premium for fine and superfine wool, with year on year prices increasing for microns below 21, while those above have seen prices decrease.

With the EMI currently sitting at 1,401 c/kg clean, this should result in net average returns to clients with 19 micron Merino clips, of around $11.11/kg greasy, assuming a yield of 65%. This would produce a return of $66.66/head net for sheep cutting 6.0 kg/head greasy.

This price of $11.11/kg net compares with the average budgeted Break Even Price for clients in 2021 of $5.00/kg and that for the top 20% of $2.67/kg. These figures provide a significant profit margin for wool growers.