Friday, March 29, 2024

Slow start to wool season

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Demand for Merino wool has taken a hit but it’s not a dramatic downturn, says New Zealand Merino (NZM) chief executive John Brackenridge. Fine wool prices, both in NZ and Australia, have struggled since the start of the fine wool selling season last month.
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Prices at NZ auctions have been 40% back on the same time last year. 

Fine wool in the 17-18 micron range was fetching $13-$15 a kilogram clean, at the fortnightly South Island wool auction that again saw cautious bidding from the floor, with the market yet to find stable ground after very fluid movements occurring on both sides of the Tasman in recent sales.

Merino sheep are typically shorn between July and October with the main selling period for this wool running from August through to early December.

PGG Wrightson wool manager Grant Edwards says the economic pressure created by covid-19 had resulted in reduced demand for fine wool.

Coarse wools, already under significant pressure pre-covid, have also been heavily impacted.

“It’s tough going for wool prices, the world is in a degree of turmoil and it’s really affecting our supply chain,” he said.

Edwards says the one positive for fine wool growers is the option of secure forward contracts.

“They don’t have to operate in the open market and would have realised better prices,” he said.

Edwards says it is difficult to predict when market conditions will improve.

Brackenridge says while NZM sells in the Australian market, with expectation of achieving better prices, it is a small percentage of NZM’s wool that goes to commodity.

He says close to 70% is sold into long-term contracts and that market has not fallen.

“Overall, contracts are buffeted from extremes and we have very few farmers that choose commodity,” he said.

Brackenridge says the fall of the commodity market reinforces the NZM model that provides stability for both growers and the end market.

Key factors in the downturn are the suiting market and the active outdoors market, both initially took a hit when retail shut down because of covid.

New channels now, particularly online, are kicking in.

“The commodity market will bounce around in an environment such as this.

“Occasionally, there’ll be little nuances in the contract market but generally it’s very much business as usual for growers,” Brackenridge said.

Uncertainty is expected to hang about for a while yet.

“No one can say we are through the worst, or when it will get better,” he said.

“There will be rocks on the road yet.

“As an industry we are continuing to stay close to the markets and brand and they will stay around so long as we continue to provide points of difference.”

According to Australian-based Mecardo analyst Andrew Woods, the current down cycle in Merino prices, currently about 60% down in Australia, while on par with the 1932 downturn, is not as large as the four main down cycles of the 20th century.

“The four biggest downturns of the 20th century fell in price by 70 to 80%,” he said.

“Prices are currently down by 60% on the 2018 highs, so there is potential for prices to fall in the next couple of quarters.”

The downturn in price in 1921, following the Spanish flu, saw prices fall by 75%, before recovering in 1923.

Unfortunately, Woods says, this means historically there is some precedent for further downside in the coming months if demand does not improve.

“If the market follows recent recoveries, prices will be expected to recover around half of the 2020 losses a year or more after the cyclical low has been made,” he said.

“Now, the uncertainty centres on time, and how long before we can expect prices to start picking up.

“The key point to remember is that we do not know when the cyclical low point will be. 

“That is for hindsight to determine.”

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