Wool Market Quiet in Anticipation of Stronger but Volatile Fall

Wool Market Quiet in Anticipation of Stronger but Volatile Fall

The U.S. wool market remained relatively flat during July with many producers continuing to hold wool until the fall. By the end of July, wool prices, clean, delivered, were Grade 70s (19.15-20.59 micron) $2.50/lb.-$2.60/lb., Grade 64s (20.60-22.04 micron), $2.35/lb.-$2.50/lb., Grade 62s (22.05-23.49 micron) $2.25/lb.-$2.40/lb., and Grade 60s (23.50-24.94 micron), $1.90/lb.-$2.30/lb. Wool prices this summer have been up to 20 percent higher than last summer?s prices for the finest wool and about 10 percent higher for the lower grade wool (Grade 46-48, micron 31-34.4).

Reportedly, it is expected that the Australian market will be volatile in the fall. "The price volatility that we're going to be expecting in September, October, November is going to be quite huge and most people can't put an expectation on the market within a $4 range so they will be quite trying times for anybody looking to sell their wool" reported Jim Fenwicke, from Macquarie Bank's Agricultural Commodities Division (Australian Broadcasting Corp. 7/3/03). Woolgrowers in Australia have been encouraged to use marketing tools to manage their price risk such as futures and forward contracts.

The United States is making important strides to expand its wool exports. This year the American Sheep Industry Association (ASI) continued to invite foreign buyers to the United States. In the six months from October 2002 to March 2003, the United States exported 37 percent of its wool to Spain, followed by 22 percent to China and 13 percent to Mexico. Smaller percentages went to Italy, Canada, Germany and the United Kingdom.

ASI extended an invitation to Chinese wool buyers, but they declined due to the severe acute respiratory syndrome (SARS) outbreak. The United States is in a good position to increase wool exports (particularly its mid-micron wools) to China, because Australia?s wool supplies in the next few months are likely to be less than anticipated. Australia?s drought continues to curtail supplies and reduce the quality of wool. China is Australia?s largest export wool market. Australia exported 38 percent of its raw wool and top to China in 2002 (Woolmark 6/03).

China?s presence in the world wool markets continues to be crucial in setting prices. Since 1990, China has become the world?s major wool processor and the No. 1 market for wool textile products at retail (Woolmark 6/03). Most of the wool processed in China is sold in China and the remaining third is exported as wool textiles and apparel (Woolmark 6/03).

However, the wool industry may not be able to rely on China to pull prices up in the next few months. Mr. Wang with ACIL Tasman Consulting, reported that Chinese ?mills are only buying what they need at the moment. It is really a hand-to-mouth situation. They just buy wool in a small quantity, in some cases 10 tonne, 15 tonnes versus the 100, 200 tonnes they bought in the past."

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