AUSTRALIA’S wool industry has some “rocky roads” coming on its way to a long-term sustainable future, growers were told a Hamilton Sheepvention session yesterday.
Australian Wool Network managing director John Colley said wool has been through a “perfect storm” period of increased demand, reduced supply, “the rise and rise and rise of China”, and very good retail conditions for 3-5 years.
“And now we have the perfect storm in the other direction … things around the world are not as good as they were two years ago.
“The reality is we have all these things affecting the confidence level of retail, which affects every part of our business.”
This included the US-China trade war, that has “absolutely slaughtered” companies like the King Deer group which has more than 450 retail stores in China and supplies about 9000 outlets worldwide with wool and cashmere products, he said.
“The effects of the trade are real and it is having an effect on confidence levels.”
Mr Colley said Brexit uncertainty was also causing a lack of confidence in retail clothes spending in the United Kingdom, where AWN markets Merinosnug jumpers.
“The retail figures out of the UK are quite alarming and until Brexit settles down and they work out how it is going to actually going to affect everybody the reality is that things won’t recover there.
“And there is a flow-on from this into the EU – the EU is one of our strongest markets for wool; it is one of our traditional ones and they are hurting.”
Mr Colley suggested these global economic conditions and the combined slowdown in China were compounded by the reduction in wool supply in Australia and lower fleece quality because of the drought.
AWN forecasts 16-20pc NSW clip reduction
He said AWN was forecasting Australia’s biggest wool-producing state New South Wales would produce between 16-20 percent less wool in the coming year, which would have a massive effect on the industry.
“Because of the problems at retail, there is reduced demand for wool.
“I’m about four weeks back from a trip to China where we took some staff over there and I have never seen so many wool tops in my life – and that goes back to when we had a lot more wool than we’ve got now,” he said.
“The reality is that that there is price resistance and when our (eastern market) indicator got to 2300 cents there were people saying that 21s (micron) would go to 3000 (cents).
“They might still get to 3000 (cents) at some stage and that statement has been made publicly by other people, but it has not been made by me because I don’t think it is long-term sustainable for quite some yet,” Mr Colley said.
“The reality is there has to be a trading level where everybody can make money, whether that be the top maker, the spinner, the weaver, and it has to be passed right through to the garment at the end and the consumer has to pay it.
“If that consumer won’t pay, then the reality is it is not a true price rise,” he said.
“So when the indicator has come off from 2300 and back down to 1700 or 1800, and we are starting to sell all the wool, we are starting to get towards a real level.”
Auction prices next week?
Mr Colley said he had been told by the world’s largest wool buyer that prices when Australian auctions resume next week “it’s going to be fine, next week it will be round about the levels it closed.”
“There are other people that think it could be up to a 100 (cents) cheaper.
“The only thing that we’ve got going in favour of us is that we’ve got reduced quantity and the reduced quantity is alarming,” he said.
“To be precise, we are going to sell about 280 million kilograms of wool out of Australia this year, probably the lowest level since pre-1920 and that is not enough to keep the machinery going, coupled with what’s produced out of Argentina, Uruguay, New Zealand and South Africa.
“The world has contracted, the industry has excess machinery and at the moment people are buying wool to put it through that machinery,” he said.
“Are they making any money out of it, no they are not — so therefore there is going to be some equilibrium come here go through the industry as we go through.
“The message that I am trying to get across here is that I think we’ve got some rocky roads in front of us,” Mr Colley said.
“And I look at the price levels of where we are at each micron category now and being involved at farm level, they are still pretty good.”
He said his family expected to net more than $2000 a bale for wool getting sold next week.
Mr Colley said compared to inputs prices are pretty good and coupled with the sheep price, he was quite comfortable with where the market is at, although he would like prices to be dearer.
“We haven’t played catch up from the pound for a pound days and we probably never will, but there is still a strong future for the industry.”
He said the industry had a long-term sustainable future and there was investment occurring at all levels.
Talk of price resistance at consumer level is tedious. There is not a wool product made where the cost of the wool in that product is above five percent of the retail price. So if the price of wool doubled, the product need only go up five per cent. How is that a problem?