Q: What is the insider’s view of the wool industry with the recent drought situation in Australia and Asian production? Will we see a rise in prices with overall quality of the wool dropping?
A: This is a very perceptive question because it addresses more than the short-term effects of the drought in Australia.
For the near term, even though the drought is over, the damage has been done. From the information I have received, we can expect a shortage of wool, an increased amount of substandard wool in the market and firm or increasing prices for the next year. The demand for merino wool has held steady, with Italy and China competing for the available supply of fine merino wools. This would suggest that there is little chance of wool prices declining to last year’s levels in the near future.
The key question is where we go from here. The sheep farmers in Australia have suffered ten years of overproduction, declining demand and declining prices as a result. I understand that many of them have converted from breeding sheep for wool to breeding for meat. In other cases they may have suspended their sheep farming activities altogether and converted the land to another use. As a consequence the population of wool producing merino sheep in Australia has been reduced significantly in recent years, even before the drought.
Now, with the drought, the market condition has moved from an oversupply to a shortage of good merino wool. The hope is that the higher prices will stimulate the sheep farmers to renew their breeding programs to repopulate their flocks of wool producing merinos. Even if they move in this direction, it won’t happen overnight (one ewe produces two lambs per year), so we’ll probably be living with higher wool prices for awhile.
Date answered: 04/02/2007
Question raised by: Chris White