ITOCHU'S Tony Wilson is confident about the future of wool but sees many changes on the horizon.
Mr Wilson said growers, buyers and processors would all have to make major adjustments to stay ahead of the market.
He believed growers should aim to breed loose skinned sheep, which produced wool with a high comfort factor.
"We have undertaken trials over the past six years which show that the SRS (soft rolling skin) sheep produce the best yarn and superior fabric," Mr Wilson said.
"Comfort factor is important.
"We have airconditioning in our homes, our cars and our work places and consumers want a softer, lighter, finer garment.
"SRS has well-aligned fibres, high density and deep crimping which produces softer yarn."
Mr Wilson believed many processors would have to downsize because of low demand from the retail sector.
"There is an overcapacity of first stage processors around the world," he said.
"Most mills are working at 50-80pc of their capacity but tops are still building up.
"They are being sold at 50c-$1 below replacement level because the mills have to turn them over.
"There is very little margin in any of the manufacturing processes and there is likely to be rationalisation in the future."
He said Itochu had developed new strategies to remain at the forefront of the industry.
"We have to attack it from a new direction," he said. "We want to bring the grower closer to the end product.
"We will link our textile departments and retail departments so we can take wool through to the consume in our own name.
"We have formed alliances with woolgrowers and Australian Wool Innovations and have some exciting projects in the pipeline."
Mr Wilson warned growers that prices could have peaked.
"Growers who have passed-in their wool at recent prices are very brave," he said.
"We believe that between 800-900c is the correct level. Wool ranging from 21-24 micron is 50-100pc dearer than it was in 1998, 99 and 2000.
"We predicted a peak in May-June but we were wrong.
"The Aussie dollar has risen more than 10pc in recent months and the European market has remained stagnant.
"We were expecting a downward reaction when the new season's clip came on but we could be seeing that windback now."