Wool tangled in ongoing global uncertainty

Wool tangled in ongoing global uncertainty

Sheep
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New market fundamentals set to challenge wool growers.

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Widespread rain across most of the eastern wool growing regions has delivered renewed optimism for wool growers.

This is a major boost and provides welcome forward stability to our Australian sheep and wool production.

It was enough rain to replenish a lot of dams and, in some cases, provide relief from carting water.

Our industry has been in decline since the early 1990s and is now at it's lowest in more than a century.

In the meantime, we confront the effects of the coronavirus (COVID-19) and talk about the prospect that our economy is subject to its first recession in more than three decades.

Oil price wars caused major shocks around global economics, as oil prices plunged in value by more than a third.

Financial markets are crashing each day as we all watch share prices eat away at equity within superannuation and investment portfolios.

Without being an alarmist, our incredible run of prosperity looks likely to end for the short to medium term, as we work our way through the health pandemic and also the major adjustment to our financial markets.

As oil prices plummet, so will the cost of all other competing man-made fibres.

The pressure of competition within textiles must weigh heavily on our beautiful wool fibre.

In the short to medium term, we are still grappling with the mini stockpile, which is mainly Merino combing wool types such as fleece and skirtings.

We have exporters reporting increased pressure on their ability to turnover working capital, as shipments and banking slow up.

Brokers are offering extended payment terms to help.

My suggestion is to keep selling into this market, as prices may well drop further over the course of the year.

Our international consumer markets will all be very sensitive and their spending patterns will move to being focused on essential items, such as food.

We anticipate the retail sector is already seeing a dramatic reduction in demand for textiles, as they are deemed non-essential to a household in uncertain times.

Let's finish on an optimistic outlook, in that this period of time will be limited and once confidence is re-established so too will demand for textiles.

However, we must all keep running our businesses in the meantime, so seek advice from your broker about how to best manage your wool sales going forward.

We are seeing so many growers sitting on their wool anticipating better prices if they wait.

How long can they wait?

How long before the outlook improves?

Does the wool market need to adjust to lower trading ranges in the medium term so that we can compete against the lower prices of competing fibres?

Enjoy the great start to the growing season, but please think about the new market fundamentals that will challenge us at the same time.

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