Shrinking sheep, booming market: What’s causing the surge in Australia’s wool prices?

West Vic wool producers are seeing the strongest returns in eight years, with prices hitting $19 a kilogram as historically low sheep numbers and strong international demand drive a welcome turnaround for farmers.

The price jump: Victorian Farmers Federation Livestock president Scott Young told the Brolga while prices had eased slightly after peaking earlier this month: “the general trend has been really positive. Which is fantastic for the industry and fantastic for wool producers”.

• The Australian Wool Exchange's Eastern Market Indicator was sitting at $19.43 a kilogram on June 24 after reaching $19.89 a kilogram a week earlier. At the same time last year, the benchmark price was just $12.07 a kilogram.

A simple equation: Young, a sheep and crop farmer in Ballan, said the rally has been driven by basic supply and demand.

🗣️ “We’ve got a really low sheep flock, which means tighter supply, and we’ve got some good demand out there, which means that the processors are having to pay a bit more for it, which is great for Australian producers”. 

The numbers: According to Meat & Livestock Australia, Australia’s sheep flock is forecast to fall to 67.1 million head this year, continuing a long-term decline driven by “ongoing seasonal pressures”, such as the recent drought. 

• The national flock peaked at about 180 million head in 1970.

Expanding operations: Young said stronger returns for both wool and livestock were encouraging some farmers to expand their flocks after years of growth in the cropping sector.

🗣️ “Farmers are all running businesses, and if they’re not making profit, they’ll look to other enterprises or other commodities,” he said. “If they’ve still got that ability, they’re looking at getting back into sheep or increasing their flock numbers.”

Other side of the fence: As processors purchase wool at higher cost, this could result in more expensive price tags hanging from garments in stores. 

• While some specialty brands may have wool contracts in place, where they arrange to buy a certain amount at a set price ahead of time, about 90 percent of Australia’s wool is auctioned.

🗣️ “There's always a limit to how much they're going to be able to pay before it affects the consumer at the other end, but they're developing better techniques, better use of wool blends,” Young said.

🗣️ “That is helping to minimise that increase in price, or blending different microns of wool to be able to achieve the end product they want at a lower base price.” 

Looking ahead: Young said it was too early to declare the recent prices a permanent shift but hoped the market could establish a stronger long-term base.

🗣️ “I don’t like saying the new normal, but I would hope that we can find a floor in the market somewhere that’s in the higher end,” he said.