Directors from Wool Grower Holdings, which owns 60% of Wool Partners International, and Primary Wool Co-operative, which owns 50% of Elders Primary Wool, have met twice in recent months and plan to meet again next month to find ways of working together.
Primary Wool Co-operative chairman Bay de Lautour would not speculate on where the talks could end, but one option could be a jointly-owned company which marketed wool for both companies.
He said a merger or working relationship would be of co-operative, not separate, ownership.
Mr de Lautour said in an interview it did not make sense for the two New Zealand-owned companies to compete for markets, a situation he said equally applied to the meat industry.
"It's not doing us any good fighting in the marketplace."
Wool Grower Holdings chairman Jeff Grant agreed, saying the structure of the wool industry had to change to improve the sector's viability.
Anything could happen, from creating a single co-operative owner, to a merger, new marketing structure or logistics co-operation, Mr Grant said.
The talks contrast with the open and public animosity and sniping by Wool Partners International and Elders Primary Wool through much of last year.
Mr Grant and Mr de Lautour both said yesterday they want public fighting to end for the good of the wider wool industry.
"I think without a doubt the nonsense between Elders and Wool Partners has been unhelpful," Mr Grant said.
The wool industry has reached a perilous state with low returns because of competition from other fibres and years of little or ineffective promotion and education to consumers on the merits of wool.
Some farmers have started treating wool as a by-product of meat, which means for some it costs them more to shear the sheep than they earn from the sale of wool.
Mr de Lautour said for some farmers net wool income had fallen from more than 50% several decades ago to less than 10% today.
Both Mr de Lautour and Mr Grant said resurrecting the fortunes of wool was vital for the future of the sheep sector.
"Without the wool industry I can't see the sheep industry being viable.
"I think we're seriously losing our critical mass," Mr de Lautour said.
Mr Grant agreed.
"The status quo of the wool industry is not making sheep farming sustainable."
