WOOL prices are tipped to rise over the next five years with stronger economic activity in Western Europe and the US expected to lift consumer demand for discretionary products such as woollen clothes.
ABARES, the national commodity forecaster, this week predicted wool's benchmark eastern market indicator (EMI) would rise by 12 per cent in 2013-14 to average 1180 cents a kilogram clean.
And, with more good news for growers, it expected the EMI to rise by 15pc to average around 1200c/kg clean in 2017–18.
Besides China's apparel wool exports benefiting from strengthening demand in key world markets, ABARES said improved economic activity would also see China's domestic demand for wool apparel increase.
However, an assumed further strengthening of the Australian dollar and a forecast slight increase in global wool production were expected to put some downward pressure on prices which would limit their potential for rises in 2013–14.
After two years of increasing prices in 2010 and 2011 - peaking with an EMI of 1436c in June, 2011 - the EMI declined during the first eight months of 2012 due to weaker consumer demand in Western Europe, the US and Japan.
The EMI price fall was led by a sharp drop in the prices of fine and superfine wools. A modest recovery started in the final quarter of 2012 and continued into early 2013.
ABARES expected prices to remain relatively firm for the remainder of the year, forecasting the EMI would average 1050c for 2012–13 as a whole, 13pc lower than the 2011–12 average of 1203c.
The improved wool market was also helping spur national flock rebuilding with numbers expected to reach 77 million by June 30, 2014.
The swing to lamb production over the past two decades had increased the proportion of ewes in the adult flock (now around 81pc) and reduced the number of heavy-cutting Merino wethers which had impacted on wool production.
Australian shorn wool production was forecast to increase by 2pc in 2013–14 to 368,000 tonnes as a result of the increase in the number of sheep shorn and in fleece weights as more producers again focused on wool.
Over the medium term Australian shorn wool production was forecast to keep increasing, reaching 392,000 tonnes in 2017–18 as the number of sheep shorn continued to rise and the average wool cut per head rose
incrementally with the growth in wether numbers.
ABARES said when sheep numbers were contracting, the share of medium Merino wools (19.6 to 24.5 micron) in the national clip declined from just under 80pc in the early 1990s to 49pc in 2008–09 when sheep numbers were at their lowest.
Production of fine and superfine wools (19.5 micron and finer) rose over this period from 8pc in 1992–93 to over one-third of the clip.
The share of these wools had continued to grow with 37pc of wools in this category in 2011–12.
Greater use of crossbreed sheep to increase sheepmeat production had also resulted in a production rise of broader micron wool (24.6 micron and broader) in recent years, from 15pc in 2008–09 to 18pc in 2011–12.
Over the medium term the expected increase in Merino sheep for wool production would lead to the proportion of mid-micron wools increasing again, but this would be tempered with the continued but slower growth in sheepmeat production.