Situation and Outlook for New Zealand Agriculture and Forestry (August 2008)
17 Wool
Farm-gate prices for crossbred wool, which makes up the bulk of the New Zealand wool clip, were lower in the year ended 31 March 2008 compared with the previous year. Over the same period, farm-gate prices for fine and mid-micron wools improved.
Adjusting for inflation, the average farm-gate wool price is now at its lowest recorded level – just 6.2 percent of the price it was at the peak of the Korean War wool boom.
Crossbred wool
The high New Zealand dollar was the main contributor to a fall in crossbred wool prices, with international prices for crossbred wool improving on the previous year. New Zealand is the world’s largest producer of crossbred wool, for which the main end use is interiors, such as carpets and rugs.
While the slowdown in global economic growth is expected to reduce demand in the short term for woollen interior products in some traditional markets, it will be offset by increased consumption in the Asian countries, particularly China. Import carpet volumes into the US – the world’s largest carpet market and the main destination for Chinese carpet exports – have been falling since late 2007. This is related to the credit crisis in the US. However, offsetting this decline is an increase in domestic consumption for carpet among the Chinese. Rising incomes in China are the stimulus and this trend is expected to continue.
Prices for crossbred wool in export markets are expected to improve over coming years despite sluggish demand. Supply of crossbred wool from New Zealand is declining due to the expansion of dairy farming and droughts in the last two years. Supply is also forecast to fall in the other main crossbred wool-producing countries, China and the UK. The fairly modest rises in international prices will become significant in New Zealand dollar terms as the New Zealand dollar depreciates over the next four years.
Fine and mid-micron wool
A reduced supply of apparel wools due to the drought in Australia drove up international prices for fine and mid-micron wools. This was of a magnitude that more than offset the exchange rate impact.
The uncertainty of supply that pushed apparel wool prices up in the last year has been reduced in the short term, with Australian wool production expected to stabilise at the current level. Since January, Australian fine wool prices have been steadily falling. The strong Australian dollar and increasing negative publicity on the mulesing of sheep in Australia have also contributed.
Prices for fine and mid-micron wool are forecast to decline as the Australian sheep flock rebuilds and Australian fine and mid-micron wool production increases.
Exports
Wool exports earned $615 million in the year ended 31 March 2008 (down 10 percent from the previous year). Export volumes fell 5.1 percent to 148 000 tonnes.
Export volumes and values were down for most of the main export markets, except for China. Export volumes to China increased by 4.8 percent in the year ended 31 March 2008, while the export value fell 1.5 percent.
The volume of New Zealand’s wool exports is expected to fall over the next year and show a slight recovery in the following year as farmers restock and wool weights improve. Longer term, we expect production to reduce slightly and then stabilise. More wool is expected to be diverted into the Chinese market as exporters take advantage of the tariff-free allocation for 25 000 tonnes negotiated under the New Zealand–China Free Trade Agreement. Export values are expected to decline over the short term, driven by decreasing volumes. In the long term, values are expected to rise, driven by a lower New Zealand dollar and improving international prices.
Table 17.1: Wool prices, export volumes and value, 2005–2012
Actual |
Forecast | |||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |
| Average sale price1 (cents/kg) | 405 | 366 | 372 | 380 | 415 | 462 | 502 | 535 |
| Export volume2 (000 tonnes) | 148 | 157 | 156 | 148 | 140 | 143 | 142 | 142 |
| Export value2 ($ mil) | 698 | 668 | 687 | 615 | 607 | 679 | 743 | 795 |
Notes
1. Year to 30 June. 2008 figure is estimated.
2. Year to 31 March.
Source Meat & Wool New Zealand, Statistics New Zealand and MAF.
Production
The volume of wool sold privately and at auction in the year ended 31 March 2008 fell by 8.0 percent. Shorn wool volumes fell in line with the lower sheep numbers, while slipe wool (the wool from slaughtered sheep and lambs) volumes rose as slaughtering increased with the drought.
The impact on wool production of the recent drought and poor returns for lamb and wool will be more apparent in the next few years. Fewer sheep to shear and lower wool weights following the drought will reduce shorn wool production. With fewer lambs available for slaughter, slipe wool volumes will reduce.
Figure 17.1: Wool export destinations, by value, year ended 31 March 2008
Source Statistics New Zealand.
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