Higher wool prices not reaching us, Kiwi farmers say

Wool prices are hitting highs not seen in a decade but farmers say returns at the gate are not sustainable. Photo / Supplied

International wool prices are hitting highs not seen in a decade but farmers say returns at the gate are not sustainable.

The ANZ Commodity Price Index for September showed wool prices up 12 per cent to a 14-year high.

However, the NZ dollar rose in value against the currencies of most trading partners on a monthly average basis, with the exception of Australia, which can have a dampening effect when prices are converted into local currency.

ANZ economist Steve Edwards said in New Zealand dollar terms wool prices were at about a two-year high, with market indicators of $4.26kg for cross bred wool at the last sale in September, compared with a low of about $3.10 in the middle of last year.

"It's been rising for over a year now as the global economy picks up," Edwards said.

ANZ said the lift in prices was likely attributable to higher prices for cotton and renewed demand from the Middle East and Europe, coinciding with a run-down in inventories.

Federated Farmers Meat & Fibre chairman Bruce Wills said prices were not at a sustainable level.

"The talk of 14-year highs for a lot of farmers their eyes just glaze over because those sorts of figures mean nothing at the farm gate when we know the sort of poor returns that we're still getting," he said.

A lot of wool was sold in US dollars and the value of the currency meant that little of the increased price came back to the farm gate.

"At farm gate level certainly our wool prices are a little bit higher than they were 12 months ago and certainly the mood among wool growers is that perhaps the worst is over, perhaps the tide may finally be turning on this very long decline in wool fortunes."

Wills has 2600 ewes on his Napier farm, down from 6500 four years ago.

"The predominant reason we had the slashing in numbers [was] we got sick of working 365 days a year and losing money on sheep."

A year ago Wills' net wool returns only just covered the cost of getting it off the sheep's back but in the year just finished things had turned and were looking better, he said.

"But it's got an awful long way to go before farmers really start putting emphasis back on selecting for wool traits and really turning focus on to wool rather than meat where it is currently [and] where we're getting the bulk of our return."

Most of the increase in international prices was related to supply.

"It's almost as if the market is benefiting from its past failures."

Skye Ward, Rabobank commodities analyst in Australia, said international prices were high, driven mainly by constrained supply, with a significant decline in the sheep flock in Australia during the past 10 years. In New Zealand total sheep numbers as at June 30 were up 2.5 per cent to 33.2 million, with a peak of 70.3 million in 1982.

"The outlook is really hinging on the fact that supplies are fairly constrained," she said. "In terms of any upside for wool I think going forward it will really depend on a pick-up in demand."

The market was driven by demand for carpet and floor covering, with production accounting for about 45 per cent of global carpet wool and 30 per cent of that suitable for floor coverings.

She said there were reasonable growth prospects in China and a fragile recovery in Europe.

GOOD YARN

*International prices hit 14-year high.
*In NZ dollars prices are at a two-year high.
*Prices driven up by constrained supply.