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There are "just a few hints" of upside potential for crossbred wool prices over the next two years, an industry report says.
Auction prices had lifted slightly in recent months and demand from China was just starting to return, the Ministry for Primary Industries latest Situation and Outlook report said.
The wool market had been struggling for the past 18 months or more. The main reasons were a lack of crossbred wool demand from China and increased competition from cheaper synthetic fibres. That had led to a build-up of inventory on farms and throughout the supply chain, which was slowly being worked through.
As opposed to crossbred wool, fine wool prices had reached record highs but fine wool accounted for only 8% of production. The price difference between fine wool (less than 24.5 micron) and crossbred wool (over 31.4 micron) had never been greater. From January to March this year, fine wool export prices were five and a-half times higher than crossbred.
Even though market conditions had not improved in the past year, export volumes had recovered and were likely to exceed production as stocks built up in 2017 were liquidated.
With that higher export volume, wool exports were forecast to have risen 4% to $540 million in the year ending June 2018, despite average export prices falling for the second consecutive year.
Prices for crude oil, from which synthetic fibres were manufactured, had risen from under $US50 to nearly $US80 per barrel in the past year. That lift in demand and an expected rise in synthetic fibre prices might be enough to help volumes pick up and for excess inventory to be cleared, which was a prerequisite for prices to recover sustainably.
Looking further out, work was under way to identify new uses for crossbred wool to diversify demand and lift value in the sector.
One wool enthusiast is Auckland entrepreneur Dana McKenzie who, last year, launched her woollen yoga mats at OM Yoga in London, the biggest yoga gathering in Europe.
While the launch was "incredibly useful" to calibrating the theory about the target market, the Fifth Breath business had not thrived with the partnership structure in place and was disbanded at the beginning of the year, Mrs McKenzie said.
Since then, she had rebranded and repositioned the yoga mats under Yolana, a 100% New Zealand owned company, and had softly relaunched.
"The mission of continuing to bring natural fibre accessories to a growing yoga industry remains a focus for me," she said.
One of her big discoveries was it was "very much a wool story" rather than being about yoga. People loved the sustainable fibre and the craftsmanship involved. Yoga was a "huge" movement and customers were mostly from New Zealand and the United States.
She was thrilled to see a recent Country Calendar programme featuring Northern Southland farmers Simon and Annabel Saunders in which Mrs Saunders was taking a yoga class using one of her mats. She was one of Mrs McKenzie’s first customers.
Finding alternative uses for crossbred wool is a big motivator for Mrs McKenzie. The merino segment had been well served by pioneers such as Icebreaker, she said.
There was 1.8kg of wool in each mat, predominantly crossbred with a small amount of merino.
She believed the tide was turning and conscientious consumers were buying "less but better" and understanding the true cost involved with the entire supply chain. Roger Fuller, of CP Wool, said prices were boosted by the 2.5% currency drop at last week’s South Island wool sale, with all categories moving in a positive direction.
Good demand for new season pre-lamb crossbred wool and good colour second shear types were a feature.
PGG Wrightson Wool’s South Island sales team said very wet conditions restricted shearing in most areas and resulted in a reduced offering, which was supported by stored wool.
A limited offering of mid-micron wool gained good support for the more stylish lots, reflecting the positive market gains across the Tasman.
A range of prices. — Highfield Pastures (Waimate), 45 bales Romney second-shear AA, 37.6 micron, 83% yield, 294 greasy, 354 clean; Linnburn Station (Ranfurly), five bales halfbred lambs AA, 25.9 micron, 74% yield, 936 greasy, 1265 clean; Greer Farms Ltd (Milton), 10 bales crossbred two-tooth second-shear AA, 38.7 micron, 84.4% yield, 299 greasy, 354 clean; Lo Debar Station (Otago), 11 bales Perendale, 34.6 micron, 74.8% yield, 288 greasy, 385 clean; Verterburn Farming Co Ltd (Otago), 21 bales Perendale, 36.8 micron, 82.2% yield, 314 greasy, 382 clean; B and C Mills (Otago), 32 bales crossbred, 36.6 micron, 75% yield, 272 greasy, 363 clean; Struthers Farm (Otago), 15 bales crossbred AA, 37.5 micron, 76.7% yield, 288 greasy, 375 clean; M Jones Family Trust (Otago), seven bales crossbred second-shear, 37.9 micron, 87% yield, 315 greasy, 362 clean; Deep Dell Station (Otago), four bales halfbred AA, 25.2 micron.