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18 December 2002
Sheep numbers are expected to continue to decline through changing land use to dairy and deer according to the Ministry of Agriculture and Forestry’s latest forecasting report – the Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF).
The December 2002 report projects that this fall in numbers will result in a corresponding fall in production and exports through to 2006. The report does say, however, that auction prices for wool are expected to rise next year, with some easing in 2003/04, before gradually rising again from 2004/05.
Looking at the 2001/02 season, the report finds that wool production for the year ended June 2002 fell by three percent to 174,000 tonnes (clean).
Wool exports for the year totalled 151,000 tonnes clean – down nine percent from the previous season.
Exports to the UK, New Zealand’s second largest market fell by 20 percent. Despite the drop in total exports, however, sales generally increased to our other main markets – China (up 18 percent), India (up three percent) and Australia (up seven percent).
China remained the largest buyer of New Zealand wool taking around 34,700 tonnes clean in the past season – 23 percent of total wool exports.
While exports were down on the previous season, the volume of wool processed in New Zealand increased.
Pricewise, the fine wool indicator price decreased by 28 percent to approximately 1,180 cents per kilogram – primarily because of lower Chinese purchases of Australian fine wool; the majority of New Zealand’s fine wool being sold during the period in the season where prices were lowest; sluggish demand following September 11; lower prices for competitive fibres such as cotton and synthetics; and the rising value of the New Zealand dollar.
The medium wool price increased by 24 percent to 700c/kg clean – driven almost entirely by the strength of China’s demand for wool for producing hand knitting yarn.
The strong wool indicator price rose by 7 percent to 438c/kg clean – the modest increase reflecting the more stable state of the world’s carpet industry.
In the forecast from 2002/03 through to 2005/06 the report’s author Jagdish Prasad says a warmer than usual winter this year will likely increase per-head production in the 2002/03 season. This should see wool production rise to 178,000 tonnes clean, and consequent wool exports will rise to around 157,000 tonnes clean.
Prices for all wool grades are forecast to increase in 2002/03, reflecting reduced Australian fine wool supplies and strong demand from buyers. This should see the average (all-segments) auction price for the season rise 30 percent. In 2003/04 and 2004/05 fine wool prices are forecast to fall as wool prices are currently relatively high compared to alternative fibre prices. Some processors are likely to look at using these other fibres such as cotton and synthetics.
"Fine wool prices are likely to remain volatile," says Mr Prasad. "There is expected to be some consumer resistance to the substantial price increases that have occurred through calendar year 2002, which took fine wool prices to historic highs relative to cotton and synthetics."
Prices for mid-micron wool are also likely to be subject to some consumer resistance to recent price increases.
And strong wool prices are expected to continue to rise over the medium term, due to increasing demand as world economic growth improves. Wool is expected to retain its premier position in the carpet industry.
The SONZAF wool report details plans for industry reform, with the Wool Industry Restructuring Bill, disestablishing the Wool Board, soon to be introduced into Parliament.
Mr Prasad anticipates a sound long-term outlook for the New Zealand wool industry. He expects wool and wool blends to maintain their premier position in fashion garments.
Progress on alternative uses for wool has also been encouraging e.g. the use of wool in environmental salvage following oil spills and its use in house insulation. "In the future, technological progress will enable further novel uses for wool to be developed," says Mr Prasad. "Wool will go from being just a fibre for clothing and carpets to being a fibre used in many new situations with many new and innovative applications."
Reductions in trade barriers are likely to help trade in textiles and garments.
With wool prices forecast to continue to rise due to falling supplies and increasing demand, the wool industry is likely to continue to develop niche markets for woollen products that command premium prices.
And the future looks bright for the strong wool market as well, with wool carpets maintaining their market share and discerning, affluent consumers continuing to prefer wool over synthetic carpets. The world housing market continues to expand – further increasing the overall demand for carpets.
For further information, please contact:
Rod Forbes, Senior Policy Analyst, MAF Policy