Wool production in South Africa, Argentina, NZ, and the UK, as the global production of wool is forecast to decline by over 2% for the coming year.
The production of wool used in apparel has continuously fallen below the production volume of wool used in interior textiles. The gap between these two sectors is simple – income from meat and wool is better than just wool.
Farmers are choosing production systems of dual-purpose (wool plus meat), prime lamb sheep breeds as well as shedding breeds to avoid harvesting of the fleece costs completely.
The gap is getting higher, with interior wool production 55% of the global wool production, and apparel wool production at around 45%
Merino production is falling throughout the major producing countries. The micron is getting finer and sits around the 20 micron average.
While the global downturn is affecting discretionary spending areas of consumption where wool apparel sits, the working from home policy of many first world nations is impacting heavily. Less business wear of the traditional style is now required – 40% in most individuals wardrobe – as lower end casual wear is sufficient for 4 days a week now.
Therefore, the higher priced wools – the finest – are suffering the greatest.
In comparison to the entire Merino sector, the crossbred wool types have staged a price recovery for 12 months, albeit from a very poor, low price basis.
The past 12 months has seen the price of most of the extruded synthetic fibres and cotton alternatives to wool fall below the crossbred wool values.
Since the pandemic, these crossbred wools of 26 to 30micron had been sitting underneath the values being paid for cotton, acrylic and polyester, but now are surging above their competing fibres as synthetics and cotton fall and crossbred wool regains favour in the textile business.
Merino values remain far more valuable, but the price gaps have narrowed the past few decades.
Also, unfortunately the data from the past 6 months or so shows increasing values for synthetics, whilst the two natural fibres such as Merino and cotton are trending flat to down. Cotton has been particularly out of favour.
The Purchasing Managers Index is a measure of the current direction of economic trends in manufacturing.
South Africa's red meat and wool exports are on a recovery path
The PMI is based on a monthly survey of supply chain managers across industry, covering both upstream and downstream activity.
A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction while a reading at 50 indicates no change. The further away from 50, the greater the level of change.
The Australian Wool Innovation developed PMI shown here is a composite index derived from PMI data out of Italy, the UK, South Korea, Japan and the USA weighted to market size out of those key consumer markets. Plans are to develop China data into this model.
As we head further into 2024 and beyond, the trendline shows that the 50 level is likely to be breached shortly. This should see textile business conditions improve overall and head into expansionary levels.
China is now the world’s number 1 consumer of apparel wool, taking over Japan about 2 years ago. Prior to this, Japan was the world’s number 1 apparel wool consumer for over 40 years.
86.4% of Australia’s wool moves through China for processing. Half of that wool never leaves China again – meaning they’re consuming approximately 47% of Australia’s clip.
China is an incredibly important market for Australia in terms of both processing and consumption.
Global Data is also reporting aspirational luxury shoppers have been forced to curb spending due to the high inflation and macroeconomic issues plaguing wools major consumer markets in North America and Europe. Shoppers are prioritizing on essential items and boosting savings.
In China, the luxury shopper has also been the most impacted. The ongoing real estate crisis and stock market devaluations are the primary reasons. While these economic issues are set to gradually improve in coming years, they may have lingering effects on consumer confidence.
Economic uncertainty is also leading some consumers to divert their luxury spend towards items like fine jewellery and watches rather than apparel. This is due to the value holding better or resale value of these items being less volatile as it is tied to the price of physical commodities such as precious metals and stones.
According to Global Data, the recent failures of luxury online marketplaces such as Matches and Farfetch highlight the difficulties of selling luxury fashion online.
Luxury consumers generally prefer to shop in store given the high price tags of the goods as well as the higher standards of customer service associated with the luxury instore shopping experience.
This means that online growth will most likely be limited, and the luxury sector will remain more dependent on bricks and mortar stores, which are far more expensive to operate.
2023 saw the first annual spend on purchasing luxury apparel reaching over 200 billion US dollars.
The Australian Wool Production Committee forecast of shorn wool production for the 2024/25 season is 285 Mkg greasy. This is a 10.1% decrease compared to the previous season.
AWI extrapolates this number to estimate the AWTA key test data to reach around 301mkg. The number of sheep shorn is forecast at 64.2 million, down 10.3%.
Uncertainty surrounding the seasonal outlook and lower gross margins for sheep and wool production compared with alternative enterprises has impacted sentiment among producers which contributed to the reduced forecast of shorn wool production for the new season.
The fibre diameter distribution of the national clip is enlarging primarily at the finest end of the Australian clip. Production of wool finer than 18.5 micron gained an 11.7% share percentage. The wools broader than 23.5 micron have increased 2.6%.The downside of the production data is in the mid microns. 18.6 to 20.5micron has dropped 4.8% of its percentage share.
But the biggest loss has been in the Medium wool sector between 20.6 and 23.5 micron which has seen a share of the clip drop by 18.3% year on year. Merino wool finer than 20.5 micron make up 69% of the national clip.
The anecdotal reports from the past 5 years or so that Australian farmers are turning to meat sheep is now evidenced by the data.
The broader than 23.5 micron wools now contribute 19.6% of volume to the national clip – the highest percentage share for more than a decade or two.
The period since covid has accelerated grower enterprises towards protein for food rather than for fibre production.
As this push towards meat continues, the overall GDP from wool will suffer, as volumes of lower value wool production increases.
ABS (Australian Bureau of Statistics) data shows the Chinese Import of Australian wool a dominant 86.4% of volume and 84.1% of export A$value for the 2023/24 season. That compares to 82.6% the prior season.
India and Italy lost considerable ground compared to China as potential competitors of greater consequence to China’s dominance. This highlights the placement of first stage machinery around the globe, as since mid-2022, machinery demand has largely been the backbone and primary factor of wool importing. More machines, more wool needed to keep turning.
For the 2023/24 season, Australia exported 96.5% of weight of wool in the greasy, raw form. 1.1% was scoured wool and 2.4% carbonized.
China’s appetite for Australian wool continues to grow exponentially each year. In fact, if the wool import into China grows to the expected GDP, then both Australia’s production and China’s demand for raw wool will be identical. This will create some complexity as to how that supply versus demand situation with the rest of the world plays out.
Unfortunately the supply deficit indicates there has not been enough positive price movements in order to encourage all land owners to remain in the wool industry long term.
Wool growing can create relatively stable and reliable income when compared to other enterprises, but alternatives are available.
At present, in many parts of Australia, growing wool for best profitable use of their land is low. This is certainly not the case across the nation, but it is wise to see the direction that some land owners are heading.
The outlook in 2024 is for a strengthening Australian dollar against the US dollar. NAB predicts that the Australian dollar value will increase to over 0.70c early in 2025 and indeed at the 0.75 level by the end of 2025.
Most financial markets are backing RBA interest rate cuts, with a near-record number of short positions on the AUD.
The Australian Government ABARES latest release shows the nominal Australian wool price, measured by the Eastern Market Indicator (EMI), is forecast to average 1,131 c/kg in 2024–25, down 2% from the previous year and below the 10-year average.
Advanced economy demand for woollen products is expected to increase as these macroeconomic conditions improve.
Disposable incomes are expected to rise, reflecting relatively low unemployment and a likely reduction in interest rates as inflation nears target levels in most advanced economies. This is expected to drive improved discretionary spending and drive demand for woollen garments.
