- Outlook for 2003/04 to 2006/07
- Latest situation and outlook
- Table 7: Wool situation and outlook
- Table 8: Average wool prices: baseline and alternative exchange rate scenarios
Wool
Outlook for 2003/04 to 2006/07
Production and sales
Latest situation and outlook
New Zealand's total wool sales (an industry proxy for production since stocks held on farms are not available) for the first nine months of the 2003/04 season (to March 2004) are down eight percent on the same period for the previous season. However, total wool sales for the 2003/04 season are expected to remain similar to the 2002/03 total of about 173,000 tonnes clean.
According to the provisional results of Statistics New Zealand's 2003 survey, released in February 2004, sheep numbers increased by about 1 percent to 39.7 million head at 30 June 2003. This small increase reverses the trend of declining sheep numbers over the last two decades. A gradual increase in sheep numbers is forecast to continue over the outlook period. Factors contributing to the projected increase in sheep numbers include:
- the strengthening of the lamb to beef price ratio;
- a brighter medium term outlook for wool returns despite the current downturn;
- slowing down of conversions of sheep farms to dairy farms in the South Island due in part to restrictions on irrigation water; and
- forecast lower returns for dairy over the outlook period.
New Zealand's wool production and sales over the outlook period are therefore forecast to increase, reflecting the higher sheep numbers.
Significant changes from SONZAF 2003, and reasons for the changes
Sheep numbers, and consequently wool production and sales, are now expected to rise for the reasons stated above.
Exports
Latest situation and outlook
Wool exports during the first nine months of the 2003/04 season are down by 2 percent to 102,000 tonnes compared to the same period last season. Total wool sales are expected to pick up to last season's level by the end of the 2003/04 season, and therefore exports are estimated to remain similar to the 2002/03 level of 137,000 tonnes.
Exports to China, New Zealand's largest market, increased by 22 percent during the first nine months of the 2003/04 season. However, reduced sales have been reported in other major markets such as the UK, Australia, Germany, the US and Nepal.
New Zealand's domestic market is now the single largest market for New Zealand raw wool, about 20 percent being processed domestically in 2002/03 compared with 13 percent in 2001/02. The 80:20 ratio of raw wool export to domestic processing of New Zealand wool, achieved over the 2002/03 season, is expected to hold constant over the outlook period. Therefore, raw wool exports, estimated at about 137,000 tonnes for the 2003/04 season, are projected to increase slightly over the outlook period following rising production and sales.
Significant changes from SONZAF 2003, and reasons for the changes
New Zealand's total wool exports for the 2003/04 season and over the outlook period have been revised downward due to increased domestic processing of wool.
Auction prices
Latest situation and outlook
Prices for all wool grades at auction have been falling during the 2003/04 season owing to the high value of the NZD. Statistics New Zealand data for the first nine months of the 2003/04 season show a 12 percent decline in the FOB value of wool exports. As a result, the average (all-segments) auction price for the 2003/04 season is estimated to fall 15 percent to 470c per kg. Auction prices for all wool categories with the exception of strong wool are forecast to continue falling through to 2004/05, reflecting the higher value of the NZD, and any growth in wool demand being offset by competition from synthetic fibres. In general, wool prices are expected to increase, but at a reduced rate over the outlook period.
Over the outlook period, it is unlikely that wool prices will reach the highs experienced in the 2002/03 season. While demand for wool is expected to strengthen from 2004/05 onwards, in line with forecast world economic growth, the rising Australian wool stockpile and increasing competition from synthetic fibres will exert significant supply pressures. The world supply of wool is also expected to increase with the recovery in the Australian sheep herd, which fell dramatically as a result of the recent drought.
Significant changes from SONZAF 2003, and reasons for the changes
The changes in wool price forecasts compared to SONZAF 2003 results from significantly stronger exchange rate assumptions and adjustments to the Australian wool stocks, which increased significantly over the 2003/04 season and are expected to remain high over the medium term.
Table 7: Wool situation and outlook
| June year | Units | 2002 | 2003 | 2004e | 2005f | 2006z | 2007z |
|---|---|---|---|---|---|---|---|
| Mated ewes and hoggets (opening)1 | mil | 29.4 | 29.1 | 29.4 | 29.3 | 29.3 | 29.3 |
| Total sheep (opening)1 | mil | 40.0 | 39.5 | 39.7 | 40.0 | 40.1 | 40.1 |
| Production | 000t clean | 173 | 173 | 173 | 174 | 175 | 175 |
| Exports | 000t clean | 151 | 137 | 137 | 139 | 139 | 139 |
| Fine Price | c/kg clean | 1,176 | 1,506 | 1,100 | 990 | 1,010 | 1,130 |
| Medium Price | c/kg clean | 700 | 797 | 630 | 598 | 622 | 663 |
| Strong Price | c/kg clean | 438 | 449 | 400 | 438 | 456 | 471 |
| Average price - baseline | c/kg clean | 508 | 551 | 470 | 465 | 483 | 510 |
| NZD/USD baseline scenario | USD | 0.431 | 0.522 | 0.639 | 0.659 | 0.621 | 0.578 |
Sources: Statistics New Zealand, Tectra Ltd and MAF
1Opening numbers are as at 30 June.
Statistics New Zealand census data as at June 2002 and provisional survey data as at June 2003.
MAF estimates, forecasts and projections for other dates.
Figures may not add or reconcile due to rounding.
Alternative exchange rate scenario analysis
New Zealand exported wool to 57 countries in first nine months of the 2003/04 season. Most wool trading is done in the USD, the UKP and the AUD. Volatility in the exchange rate of any one of these currencies, but particularly the USD, has a major impact on wool prices.
Table 8: Average wool prices: baseline and alternative exchange rate scenarios
| June year | Units | 2002 | 2003 | 2004e | 2005f | 2006z | 2007z |
|---|---|---|---|---|---|---|---|
| Average wool prices - baseline exchange rate scenario | |||||||
| NZD/USD | USD | 0.431 | 0.522 | 0.639 | 0.659 | 0.621 | 0.578 |
| Wool price | c/kg clean | 508 | 551 | 470 | 465 | 483 | 510 |
| Average wool prices - higher exchange rate scenario | |||||||
| NZD/USD | USD | 0.431 | 0.522 | 0.643 | 0.679 | 0.631 | 0.592 |
| Wool price | c/kg clean | 508 | 551 | 470 | 456 | 473 | 495 |
| Average wool prices - lower exchange rate scenario | |||||||
| NZD/USD | USD | 0.431 | 0.522 | 0.636 | 0.623 | 0.555 | 0.538 |
| Wool price | c/kg clean | 508 | 551 | 470 | 480 | 514 | 538 |
On average, for the three outlook years 2004/05 to 2006/07, low exchange rate scenario prices for all wool grades at auction are about 8 percent above the high exchange rate scenario. When compared with the baseline exchange rate scenario, the average all grades auction wool prices over the outlook years, are 2 percent below for the high exchange rate scenario, and 5 percent above for the low exchange rate scenario.
Low exchange rate scenario prices for fine and strong wool, when compared with the baseline scenario, are 8 percent and 6 percent higher in 2005/06, and 8 percent and 5 percent higher in 2006/07, respectively. High exchange rate scenario prices for fine wool, when compared with the baseline exchange rate scenario, are 2 percent below, on average over the outlook years. When compared on the same basis, strong wool prices are 2 percent below in 2004/05 and 2005/06, and 3 percent below in 2006/07.
Contact for Enquiries
Monitoring and Evaluation
PO Box 2526
Wellington
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