Increasing fine wool uses as a luxury high-end fibre are keys to profitability

Sheep Central November 24, 2014


Rabobank analyst Georgia Twomey

Rabobank analyst Georgia Twomey

Broadening fine wool’s uses and presenting it as a luxury, high-end differentiated fibre will be key factors in the fibre’s future and profitability, according to a Rabobank report released today.

The report by Rabobank analyst Georgia Twomey said fine wool premiums in Australia in 2013/14 fell by up to 96 percent from their 2001 highs and there was little sign of imminent change.

Ms Twomey said rapidly increasing fine wool supplies and lacklustre demand resulted in a structural oversupply in the global market, presenting a dilemma for the industry.

The report ‘Walking a fine line – the fine wool dilemma’ said Australian growers who transitioned into breeding for finer micron – in an effort to remain profitable after the reserve price scheme ended – now face accumulating risks to sustainable fine wool production.

Ms Twomey said the current pressure on fine wool premiums has been exacerbated by the unfortunate set of market circumstances and timing rather than poor strategy.

Seasonal over-supply met global economic insecurity

Seasonal conditions and structural change leading to an oversupply of fine wool, a period of global economic insecurity, heavy centralisation of processing in China and specific product trends have all compounded to lead the wool industry to its current dilemma.

“These current circumstances are likely to limit upside for fine wool prices in the short term, as there is little sign of imminent change.

“Longer term, however, there is a more constructive view for fine wool, as the current perfect storm subsides and some balance to both the supply and demand factors applying pressure to the industry returns,” Ms Twomey said.

Micron is not the only issue

Ms Twomey said while there were challenges around the super fine wool supply and demand fundamentals, Rabobank believed this is a far broader issue than micron alone, and any successful solution would need to consider long-term shifts in processing and consumer demand, as well as various on-farm factors.

“As a niche fibre in the global textile market, the importance of fibre quality and relevance for end-products will become increasingly important to recognise in order to extract greater value.”

A focus on China and a strong trade relationship will be essential to maintain a healthy wool pipeline and security for wool growers in the short to medium term, but diversification of the wool processing sector was not likely to be rapid, she said.

“Wool’s inclusion in the recent China-Australia FTA agreement with a duty free country-specific quota is a crucial step in further underpinning the strength of our wool trade relationship,” she said. “Wool remains Australia’s largest rural export to China by value with 75pc of the Australian clip exported there in 2013.”

As the world transitions out of a period of economic instability, which might yet be some time away, Ms Twomey said, wool has a “fantastic opportunity as a fibre already naturally aligned with key demand trends”.

“Broadening the product segments in which fine wool participates and presenting it as a luxury, high-end differentiated fibre will be a key factor in the future sustainability and profitability of the industry.

“These downstream dynamics – as they have during the past two decades – will continue to play a critical role in on-farm profitability for wool growers,” she said.

Source: Rabobank


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