Supply outdoing demand

Wool industry in a bind as supply outdoes demand

Coronavirus
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Wool industry in a bind as gap between supply and demand continues to see stockpile rise.

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Grower resistance to the massive reductions across all Merino micron price guides (MPGs) increased last week, with the national pass-in rate at auctions jumping up over six per cent.

Last week Sydney's pass-in rate was 24.2pc with 959 bales withdrawn and Melbourne recorded a 25.7pc pass-in with 1834 bales withdrawn.

In Fremantle more than half of their offering was passed in with significant price falls.

And according to industry analysts as long as the lack of demand for the fibre continues and the prices keep falling, the gap between supply and demand will continue to see farmer stocks build, at least for the first half of the season.

According to Mecardo analyst Andrew Woods, since March this year it appears that demand can absorb between 70,000 and 80,000 bales per month.

During the past year, the AWTA has tested on average 136,000 farm bales per month.

"If we take this as the supply and assume demand can absorb 75,000 bales per month then stocks seem likely to rise by around 60,000 bales per month in the short term," Mr Woods said.

"The wool industry is in a bind. Supply is all very well, but wool is grown to be sold, and demand is struggling at present not only for wool.

"In the long run we don't want production to fall as the supply chain needs increased volumes of wool, but demand has been hit badly by Covid-19 and is obviously below production levels."

He said farmers' stocks will continue to rise but by how much depends on where production settles and how well demand can weather the pandemic storm.

According to Rabobank senior analyst, Angus Gidley-Baird, wool may be facing another hurdle as large cotton stocks have reported to been purchased by the Chinese from the US.

"As part of the US-China phase one trade deal, China is rumoured to have purchased substantial quantities of US cotton in recent months," Mr Gidley Baird said.

"Since these large purchases were prompted by the phase one agreement, as opposed to genuine demand from Chinese clothing manufacturers, stocks are expected to swell."

He said higher cotton stocks would translate into lower domestic prices and may cause some substitution away from wool.

The story Supply outdoing demand first appeared on Farm Online.

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