The Australian Eastern Market Indicator, the index for international wool prices, closed 2007 above 10 Australian dollars a kilogram for the first time in five years. While that represents a 19 percent surge in wool prices over the past year in Australian dollar terms, it equates to a 25 percent price surge in U.S. pricing. On Monday, $1 was worth 1.15 Australian dollars.
Australian wool growers are "reasonably happy" with the prices they are getting, according to Chris Wilcox, chief economist at Woolmark. However, the primary driver of the increase has been a drought that has persisted for more than five years in some areas of the country and is taking a heavy toll on the Australian economy. The drought has cut agricultural production across the board, with farm export earnings forecast to fall by more than 3 percent to 26.8 billion Australian dollars, or $23.2 billion at current exchange, in 2008, according to the Australian Bureau of Agricultural & Resource Economics, or ABARE.
"[The price surge] is due to still pretty solid demand but, in particular, concerns by processors around the world about the supply situation coming from Australia," said Wilcox. "Twelve months ago, wool production from Australia was sitting at about 425 million kilograms greasy and the current forecast for this season is 395 million kilograms. So, we're down by about 30 million kilograms, or about 8 percent. That's due entirely to the drought. Both are due to slightly lower fleece weights for the sheep, but in particular there have been growers who have sold off their flocks in the face of the drought and the high feed grain prices."
Production levels are the lowest they have been since 1946, said Wilcox.
Australia exports 65 percent of its wool clip to China, accounting for 70 percent of China's total wool imports. Last month, Chinese business news wire Sinocast reported the China National Textile & Apparel Council believes "flying" international wool prices are impeding the development of the Chinese wool textile industry. Wool import prices averaged 5,622 Australian dollars, or $4,864, a ton from January to October, up 25.5 percent from the previous year, according to Sinocast. Prices of Australian wool reached 7,146 Australian dollars, or $6,182, a ton over the same period, up 35.67 percent.