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Wool's expectations

04 Jan, 2013 06:00 AM
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THE outlook for the Australian wool market in 2012 was promising.

Following 2011, a year of robust and relatively steady prices with continued talk of Chinese growth, increased demand and a lower supply, all things were pointing to the good times continuing for wool in 2012.

It was clearly not that simple.

After starting out strongly with a Western Market Indicator (WMI) of 1197c/kg, prices steadily fell for the first half of the year to finish the selling season on 1096c/kg.

Wool supply was expected to be relatively tight over the first part of the year and wool agents and industry representatives were hoping for the rally which suggested a turn around.

But the slide continued and on the last week of the season the prices slumped to their lowest levels since 2011.

Things were only set to get worse as the first nine weeks of the new season prices nose-dived to reach a low point of 932c/kg in August.

Agents and farmers all hoped the market had found its base - and luckily for everyone it had.

Over the next few months the price steadily increased and by late October it had hit the 1000c/kg mark in most centres.

To get there, the WMI had to jump 55c/kg in a week, a rally which stumped most people in the industry.

Nevertheless, it seemed to signify a small turnaround and the WMI finished the year at 1095c/kg.

Elders wool sales manager Danny Burkett said despite the ups and downs experienced in price, the wool market was no more volatile this year than previous years.

He said the price traded in and around a 200c/kg band, which was fairly common.

When reflecting on the highs and lows, Mr Burkett said one of the standout highlights for the season was the low point in the price for 21 micron wools.

He said the bottom price was 1040c/kg clean, which at 68pc yield on good fleece wools, returned growers $1235 a bale.

"As a low point, it is one of my highlights," Mr Burkett said.

"This was also the third year in a row growers have been able to enter the market over a 12 month period and get good returns for their wool.

"This has got to have built a very solid foundation for a sound business strategy."

Over the coming year he said the supply and demand situation would continue to hold Australian wool producers in good stead.

"The volume of wool coming out of Australia is not going to change and that has been our greatest saviour in the last three years," Mr Burkett said.

"And I think it will continue to be a market saviour in the next five.

"Demand is still very solid out of China, which has taken nearly 70 per cent of our market.

"As long as China continues to perform well then out wool market, given the supply, will remain solid."

Australian Council of Wool Exporters executive director Peter Morgan said market was cautiously optimistic heading into the new year.

He said the news coming from China about their plans for the year were positive.

"Europe has problems but it is still a customer for high quality apparel, as are Japan and Korea," Dr Morgan said.

"Cotton and polyester prices have faired much worse than wool."

2012 was also a WoolPoll year with the Australian Wool Innovation (AWI) holding the tri-annual vote in November.

AWI was calling for a retention of the two per cent levy which, despite both WAFarmers and the Pastoralists and Graziers Association pushing for a 1pc vote, ended up being the result.

AWI was criticised by WAFarmers for not releasing the full State-by-State breakdown of the WoolPoll and said the company was ashamed of the votes that came out of WA.

AWI chief executive officer Stuart McCullough recognised WA producers had some soul-searching to do.

It also came under fire from WA Farmers wool section president Ed Rogister, who said the record number of grower votes in this year's WoolPoll was pleasing but the result was not.

Mr Rogister said WAFarmers was disappointed with the handling of the INF2 as well as the fact AWI refused to release the full breakdown of WoolPoll results.

"AWI needs more consultation and better communication with its shareholders," he said.

"They need to become more transparent as we have become cynical of what this board is doing."

Mr Rogister said things were extremely tough for many wool producers who were struggling with rising costs and poor prices.

"There are some growers in the mid to broad microns who will be reasonably confident heading into 2013," he said.

"But those at the finer end will be finding it tough with returns close if not below cost of production."

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READER COMMENTS

Eric Hutchinson
4/01/2013 8:35:42 AM, on Stock & Land

The Western Australians are big on free markets, which is commendable, but to say that wool prices have been poor in the past three years says to me Mr Rogister might need to look at a different career. How much forward selling did WA growers do when 21 micron was at 1500c/kg and 19 micron was at 1700 c/kg? At the end of it all reponsibility lies firmly at the feet of individual wool growers to manage prices, not blame those trying to grow demand for the fibre.
Ted O'Brien.
6/01/2013 8:51:40 AM, on The Land

Eric Hutchinson is right up to a point about responsibilty. The problem is that past corruption of the market makes it very difficult to establish changes in the way things operate. Danny is wrong in his view that depressing supply solves problems. People quote the "Law of Supply and Demand", but my observation is that those who do understand neither supply nor demand. Wool is still a very marketable product. Wool's trouble is that the Howard government forced woolgrowers to slash supply to a level which bankrupted the entire world trade in wool.
Ted O'Brien.
6/01/2013 8:55:14 AM, on The Land

Recovery is not possible until traders have security of supply. That requires increased production and prospects for further increases. Else the market will eventually settle nto a closed shop based on forward contracts to supply.
Nathan E
7/01/2013 9:08:08 AM, on The Land

Everyone is missing one fact that since 10 years ago, the sheep flock has halved, and prices have stayed the same. Not a rosy picture no matter how you look at it.
Nev
7/01/2013 8:03:30 PM, on The Land

I tend to agree with Nathan, we used to have fine wool Merinos, the old man loved his Merinos, the last of them will go to the saleyards in a couple of weeks. He would tell me with glee, the market's up son, to which I would reply, `just wait a couple of weeks it'll crash again, it always does'. I think the processors are just toying with growers, just doing enough to keep growers interested. I keep telling him, it's pointless growing a product the world no longer wants.
Steve Brook
24/01/2013 10:15:30 PM, on Stock & Land

Nev/Nathan Stop looking in the past,maybe the prices were too high in the past and these prices are more realistic.Stop blaming exporters for the low wool prices.They are the wool growers best friend .Pointless growing it!!! you can't be serious.of they want wool.What do you think happens to the wool sold now?

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COMMENTS

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"history is written by the victors"- Winston Churchill, Percy, u raise a very good point and
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Am I in a parallel universe or did no one mention the impact of state backed enterprises? Bugger
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Gregor. I currently grow conventional variety,''Garnet'and achieve results of 2-2.5 Tonnes and