Commodity price boom pushes wool market higher

This is according to agribusiness banking specialist Rabobank, which says the boom, which has seen some agricultural commodities surge to seven-year highs, is having a flow-on effect for the wool industry.

Speaking on RaboResearch podcast Booming commodity prices rubbing off on wool, Rabobank analyst Dennis Voznesenski said while some of the factors driving soft commodity prices higher - such as speculative fund activity and government intervention - did not apply to the wool market, the broader global economic recovery was having a positive effect.

"These factors are having an impact on the price of other fibres, including cotton, while synthetic fibres, which are derived from oil, have also been part of the commodity boom," Mr Voznesenski said.

Cotton prices have increased by 15 per cent this year, but Mr Voznesenki said wool prices had actually risen faster.

"The price spread between wool and cotton in US dollar terms has been increasing since late last year, indicating wool is becoming more expensive relative to cotton," he said.

"That said, it was starting from a low base, with the smallest spreads in over a decade recorded in August last year, and it is yet to reach the five-year average."

Mr Voznesenski said the Eastern Market Indicator was 27 per cent higher than the beginning of the year and had "cracked through the 1400 cent mark for the first time in over a year".

"Super-fine wool micron prices have left coarser wool behind, recovering the price drops from last year and now exceeding prices from early 2020 with 17 micron wools rising by 88 per cent since last year's September low," he said.

"While medium wools have recovered, they have not seen the same rise in prices, with 20 micron wool increasing by 62 per cent over the same period."

Rabobank's latest forecast has the EMI trading between the 1450/kg to 1600/kg range through to next June 2022.

Mr Voznesenski said the high commodity price environment was likely to maintain a positive influence on wool prices.

According to the latest Meat and Livestock Australia sheep projections, continued demand for raw wool from China, the Czech Republic, Italy and India are underpinning the price recovery.

Consumer demand for woollen garments, suits and activewear is expected to continually improve as the world recovers from COVID-19 with the resulting rebound in wool prices to encourage the retention of Merino ewes.

Fox & Lillie Rural national wool brokerage manager Eamon Timms said it was important to recognise that there are "markets within markets" and the superfine wool sector has seen a boom.

"Crossbreds have changed very little and then the finer you go, the greater the change," Mr Timms said.

"You're looking at 16 and 17 micron, on a percentile basis they're at more than 90 per cent."

Mr Timms said sales of wool for suits had collapsed in the last 12 months, with the drive in the fine wool prices coming from Chinese demand for knitwear.

"The Chinese consumer is now quite adept at recognising quality of wool garments and they will pay whatever they need to pay," he said.

"Obviously there is a risk with the fine wools having risen to such huge levels, it wouldn't be surprising if we did see the price retreat somewhat... but there's no immediate signals that fallback is imminent.

Mr Timms said he expected to see medium wools gain momentum in the next year.

"The price gap between 17 micron and 21 micron is just about at an all time record, so extremes in markets don't usually persist for long periods of time," he said.

"Do the 21s move up or do the 17s move down? I don't know but the differentials will close. I don't think that's going to happen quickly or soon, that will evolve over the next year."

But when it comes to crossbred wool prices, Mr Timms tipped they could remain "lacklustre for some time".

"One of the challenges we've faced is the crossbreds got to record all-time highs three seasons ago, but that was all based on one factor and that was a massive fad at that particular time from China for fake fur garments," he said.

"That was almost an insatiable appetite in that particular season and the crossbred wools were an important component of fake fur fabrics.

"Some of the manufacturers experimented with synthetic fibres because the price of crossbred wool got too high so if fake fur does become a fad again, there won't be the same impetus to buy crossbred wool."