April 17, 2009
The April Australian wool market kicked off with enthusiasm rising 14 Australian cents per kilogram (auc/kg) with the market indicator ending the week at 765 auc/kg.
This information, taken from the Elders Weekly Wool Report, has wool processors voicing concern and stating that a slowdown in the pace of price rises at this stage should be desired by most market participants. The rational is that a steady rise in prices allows all members in the chain to pass on to subsequent channel members and ultimately operate profitably.
This is not crazy talk, continued the processors, yet current sellers of wool may view this differently. However, they warn, if prices continue to break away to the upside, the subsequent reversal will be more severe and will remove the underlying confidence, leading to a prolonged downtrend.
The firm market can be partially attributed to the fears over an ever-reducing supply with the official Australian Wool Indicator figures touting a reduction of 10.5 percent for the current season. In the 2009-2010 wool season, supply may fall a further 6 percent, an estimate well grounded on reports of the large number of sheep currently being sold for export and to abattoirs.
Looking at the historical volumes of wool offered by Australian farmers, the 335 million kilograms (mkg) that is to be supplied in 2009-2010 is a mere shadow of 1,000 mkg produced two decades ago.
The dwindling supply at this stage of the economic downturn, however, is a blessing in disguise as it ensures a shortage, supporting the lift in prices. The significant carryover of wool stock into 2009-2010 that had been predicted some months ago, has not materialized.
Reprinted in part from Elders Weekly Wool Report