Price premium for non-mulesed Australian wool on the downturn: ANZ

The premium for non-mulesed wool has shrunk “considerably” in recent years in a sign of “tight economic times”, according to a new report by ANZ.

The bank’s Winter 2024 Agri InFocus Report, released last Thursday, found overall reductions in fleece value had come with retractions in premiums for clips originating from flocks declared as non-mulesed.

“In 2021, when wool prices for fine Merino types were trading at over 2000¢/kg, premiums of over 60¢/kg were on offer, representing ~3.5 percent payment over market value,” the report said.

“Current data suggests this premium has halved to around -1.2 percent on today’s price, at around 18¢/kg.”

In a more pressured market, the margin between premiums offered for clips from completely non-mulesed flocks compared to those that continued to mules, but provided pain relief, had “shrunk considerably”.

“It would appear that the high-end demand for fleece with certain welfare characteristics has not been protected by the global economic downturn that has impacted all fleece types this season,” the report said.

The report found prices across all microns had traded within a relatively narrow band over the past few months, as global economic conditions continue to hold the key to wool price recovery.

As the 2023/2024 wool selling season nears the end, producers would likely be entering the winter recess hoping prices would start to improve when the new season starts in July.

When taking a high-level view over the past three months, wool prices across all micron categories had been relatively stable, albeit with weekly fluctuations brought about by a combination of foreign exchange rates, supply variance and buyer demand.

After trading in the mid 1100¢/kg range for most of the year, the benchmark Eastern Market Indicator looked set to close the year at around where it started, at 1150-1160¢/kg.

“The indicator price, however, fails to recognise the individual micron variance, where in many cases, prices remain well back on year ago levels, with the finest microns suffering the biggest losses this season, and the medium to course wool types demonstrating the least volatility,” the report added.

In terms of supply, wool volumes on offer for the year were tracking about 1 per cent lower than 2022/2023, in line with forecasts the mature sheep flock would produce a similar clip to the prior year.

Auction clearance rates had also remained “reasonably steady” over the selling season, with producers generally meeting the market and selling, keeping pass in rates below 10 per cent for most of the year.

“With steady supply and good quality wool on offer from Australia, the global economic landscape continues to hold the key to price improvement for Australian wool producers,” the report said.

“Whilst some economists including ANZ recently lifted their growth forecasts for the Chinese economy, on the back of better than expected quarterly data earlier this year, the overall trajectory remains downward.

“A two-speed economy in China, predicted by some, whereby exports outperform expectations and domestic demand stays weak, could support wool demand in part, through growth in processed wool and apparel to the world.”

Weak Chinese domestic demand, however, was bad news for Australia given the large percentage of wool historically purchased by Chinese consumers.

Despite that, alternative markets were not “out of the question”, particularly given the Australian industry’s continued focus on wool as a versatile fabric for a variety of climates.