Wool Price Set to Remain on a High

Wool prices are set to remain around their current all-time high for the foreseeable future as sheep farming faces competition from more profitable dairy farming, according to the second-largest exporting nation, New Zealand.

David Carter, New Zealand agriculture minister, told the Financial Times that the cost of the fiber had moved to a new level that, even if not permanent, would prove sustainable for now.

"Prices are not going to drop back. We are into a new territory," he said.

The benchmark wool price, the Eastern Market Indicator, has risen to a record in both U.S. and Australian dollar terms. Last month it rose above $15 per kilo for the first time, more than double the level of the previous May.

The increase in wool prices is the latest example of soaring natural-fiber costs hitting the textile industry, following big rallies in cotton and silk.

Carter's predictions chime with forecasts for Australia. Canberra's commodities research bureau predicts prices for the forthcoming season will on average be higher than this season's level, as production rises just 2 percent while the size of the sheep flock increases 3 percent.

The cost of benchmark Australian wool prices has risen sharply since late last year after a surge in buying from mills in emerging markets drew down inventories. Global wool production has been on a downward trend for two decades, and in recent months, wool traders have sold almost all of their inventories to capitalize on the high prices.

"The pipeline is empty," Carter said. "Mills ran down their inventories during the global financial crisis and there is nothing left."

The trend is mirrored in other natural fibers, where low prices and competition from synthetic fibers have persuaded farmers to switch away from producing cotton and silk in recent years. Although cotton prices have tumbled in recent months, they remain at historically elevated levels above $1 a pound.

Reprinted in part from Financial Times, New Zealand