The Australian wool market has had a very good start to 2021.
Prices have generally increased at auctions held since the Christmas recess, even though offering volumes have been relatively high.
Prices for fine and superfine Merino wool - measuring 19.5-micron and lower - have benefited most from the increase.
But values for medium Merino wool - measuring 21-23-micron - have been held back by increased auction volumes.
In spite of the improvement in fine and superfine wool prices, these are only back to levels of a year ago. Medium Merino wool values are below their January 2020 levels.
Prices for fine crossbred wool - measuring 28-micron and lower - have increased from their lows in September, but have been very up-and-down and are about 20 per cent below levels of January 2020.
Values for broad wool - measuring 32-micron and higher - are also well below January 2020 levels, reflecting the prices seen in the major producing countries of New Zealand and the United Kingdom.
Prices for several major competing fibres have been doing better than wool.
These did not fall as much as wool prices during the worst impacts of the COVID-19 pandemic and have risen more quickly - with the exception of cashmere.
In particular, prices for acrylic fibre, viscose and cotton are all above levels of January 2020.
Prices for polyester staple have improved somewhat from their lows, but remain below January 2020 levels.
Wool is also a laggard compared with other commodities.
Prices for many commodities are well above levels seen at the start of 2020.
There is a view forming among commodity analysts that a commodity price "supercycle" is starting.
This view argues that the roll-out of COVID-19 vaccines across the world will help the global economy recover, and pent-up demand will boost commodity prices.
As well, the spending proposals by the new US government - and loose monetary policy - will provide a further boost.
Some analysts also believe that the coronavirus pandemic will help synchronise economic activity across the big economies around the world and provide a boost to the demand for commodities.
If there is a general commodity price supercycle, wool will benefit and prices will continue to rise.
This will probably be more so for Merino wool, than for broad types - which have been in the doldrums for the past four years.
But if we are to see a boost to wool prices, clothing retail sales will need to recover from the depths plumbed during the pandemic.
Retail sales in many major wool consuming countries have fallen sharply during the past nine to 12 months.
There are tentative signs of recovery in some countries, such as Japan and China, and the US may be starting to see a bottoming-out. But retail remains very difficult in the UK, Italy and France.
As well, consumer confidence remains very fragile and volatile. Only in China is there a sustained improvement since the lows of April 2020.
While the recent resurgence of COVID-19 infections in many countries will dampen a recovery in consumer confidence, the roll-out of vaccinations across the world throughout 2021 will help consumer confidence to recover on a firmer footing and be less volatile.
This will provide support for improved retail sales.
The change in government in the USA, and with it greater political stability, is also likely to provide a further boost to consumer confidence in the US - and may bring greater stability, certainty and coordination in the international arena.
Anecdotal reports suggest that stocks of raw wool and wool product are low through the wool textile pipeline.
Therefore, any improvement in retail sales - even from the current low base - will flow through quickly to the auction market and boost demand for wool.
Given the lags between the purchase of wool at auction and the purchase of wool products at retail, the recent improvement in wool prices is possibly due to increased demand from early stage processors and spinners.
They may be anticipating an improvement at retail as 2021 progresses - resulting in good retail demand in the Northern Hemisphere 2021 autumn-winter season later this year.
If we are seeing the start of a commodity price supercycle, then 2021 could be a much better year for Australian wool producers and the industry.
Another positive trend noted at auctions this season is higher uptake of the National Wool Declaration (NWD).
According to latest data from the Australian Wool Exchange, there was a 7 per cent increase in the number of first-hand farm bales offered at auction with a NWD this season between July 2020 and January 2021.
At the same time, there was an 11 per cent decline in the number of bales offered at auction that did not have a declaration.
As result, 75.9 per cent of all first-hand farm bales offered at auction so far this season had a declaration - which includes blank or mulesed declarations.
This is an increase on the 73.8 per cent of bales offered in the 2019-20 season, and continues the rise in the proportion of farm bales offered with a NWD since 2013-14 - when less than half (43 per cent) of farm bales offered had a NWD.
By micron category, 80 per cent of superfine wool - measuring 18.5-micron and finer - has had a NWD for the 2020-21 season to date.
There has been 75.4 per cent of 18.6-micron to 24.5-micron farm bales offered at auction with a NWD. But this proportion fell to 68.1 per cent for wool of 24.6-micron and broader.
There are signs that the rate of increase in the share of NWD-declared wool is tapering-off.
The National Council of Wool Selling Brokers of Australia (NCWSBA) believes that the Australian wool industry should strive to have 100 per cent of all farm lots of wool offered at auction with a NWD.