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Volatility of the wool market is simple and logical – Small

Peter Small, October 16, 2019

Wool grower and manufacturer Peter Small

RECENTLY I had a phone call from a young wool grower, who knew I was familiar with wool processing in China. Are the Chinese playing with the wool market he asked?

Not knowing our industry’s history, he was asking if we should have some type of price stabilisation scheme.

No market is completely free from manipulation. In 1992, George Soros shorted the UK pound, crippling the Bank of England and forcing the withdrawal of England from the European Monetary System (EMS). So there are always wealthy opportunists who can exploit a situation, but the collapse in the greasy wool market is, I think, simple and logical.

As Australia was coming to the end of the 2018/19 wool selling season some weakness started to appear. This was at the end of a 3 to 5 year bull run that Chris Wilcox, CEO of the National Council of Wool Selling Brokers of Australia describes as the greatest super cycle in the history of the world wool textile industry. Most have forgotten that the last wool boom in 1951 commenced after the Christmas break and by the end of April was running out of steam; lasting only four months.

In my view there are three factors underpinning the current market collapse:

  1. Exporters, in fact anyone who has a relationship with a Northern Hemisphere wool processor, have been reporting to their clients and friends since the mid-1990s that wool production in Australia is dropping. And so it has, from a flock 180 million sheep to the current 62 million, and future supply is at risk. This has been exacerbated in the last four years with Australia’s horrendous drought. So recently, a little additional stock has been put aside by those concerned about next year’s production. Sadly some of this stock was bought when the market was worth north of $20 a kilogram clean.
  2. Suddenly consumers around the world have put their hands in their pockets and stopped spending. This can be observed in any shopping precinct anywhere in the world. Consumers have lost confidence. We only need to ask the person standing beside us why this is so.
  3. Failure of Australia to address the demand for non-mulesed wool has meant that the premium for non-mulesed wool, particularly at a time of boom prices, has driven some brands whose customers demand non-mulesed, to desert wool, perhaps forever.

So with consumers on strike through fear as to what is ahead. Orders difficult to write along the entire textile chain from finished goods, fabric, yarn, or tops. And the world awash with over-priced stocks, what does one do, in these circumstances. The options are few. The most palatable is to buy cheap greasy wool at a price orders can be written and then hopefully blend through the expensive stock.

I fear that this correction is going to take some time and the question is once the drought breaks and wool prices have adjusted to a more commercial level, how much of our wool industry will be left?

Like all price corrections, this one is leaving few participants untouched. The damage may be in the same league as the collapse of the Reserve Price Scheme in 1989.

 

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Comments

  1. Jonathan Harton, October 23, 2019

    Thank you for the insights. It seems to help explain the shortage of wool yarn and clothing items right now. I’m concerned that consumers may also be falling prey to animal rights activism that claims sheep are treated inhumanely and therefore wool is inhumane. They also claim that plant fibres are more sustainable. Both claims seem misplaced.

  2. Edward H Wymer, October 18, 2019

    I don’t agree that the price of wool got too high. There is no quality garment produced where the price of the wool in it is more than 5 percent of the retail price. Therefore, if the price of wool doubled, why should the price of the garment go up by much more than 5pc? That shouldn’t worry the consumer customer.

    • Peter Small, October 18, 2019

      Edward Wymer, every one is entitled to their opinion, but your comment indicates you do not understand how the market works. In reality, when the consumer stops spending we are all in trouble.

      • Edward H Wymer, October 20, 2019

        Peter Small, you are right to say if the consumer stops spending we are in trouble. I maintain that if your wool sold for $1 per kg greasy or clean more it wouldn’t make any appreciable difference to the retail price of the garment, the same as if it doubled from the present level. Also if your finest wool is sold and manufactured as cashmere or mohair the sky is the limit and somehow that gets sold.

        • Donald Cameron, October 21, 2019

          After your butcher couldn’t help with your mulesing enquiry, did you as advised contact your wool broker?

  3. Donald Cameron, October 17, 2019

    Once again, dear Peter has nailed it.
    Those who don’t learn from the mistakes of the past are condemned to repeat them.
    From the buffoons of the late 1980’s to their successors, the clowns of two decades later.

  4. Jim Gordon, October 16, 2019

    Beautifully written Peter Small. You need to be cloned. Where have all the clear thinkers gone in this country.
    Why can’t we get the self interest and the politics out of this industry, before it is to late? Surely a simple question can be asked: What does the retailer want? If the Kiwis can do it, why can’t we?

    • Peter Small, October 16, 2019

      Thank you Jim Gordon for your generous comment. I wish I could do more to help my beloved wool industry. Fortunately Sheep Central provides a wonderful forum for like-minded to have their say.

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