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Australian Wool Prices Rise and Drought Threatens Supply

Australia is facing a drought that could impact the supply of wool.

The Australian Wool Exchange Eastern Market Indicator (EMI) rose 18 cents per pound for the week ended Friday to close at $14.81, following a three-week seasonal break in sales, amid a drought that’s hindering supply.

Australian Wool Innovation (AWI) said in its weekly market report that “a lackluster opening was initially the trend, but positive momentum then proceeded to build, carrying the market into positive territory by the close.” Merino fleece and skirtings are leading the price gains, while broader Merino fleece types sold for less. The report from AWI noted European buying lead the market on the finer end of the merino offering.

“The strong support on these wools from both the usual Italian operators and forward sellers eventually forced Chinese buyers to accept that the price was falling away no further for the time being and they needed to join in to secure immediate supply requirements,” the AWI weekly market summary said. “The foreign exchange rates of the U.S. dollar versus the Chinese yuan continues to be the major influence in a much of the negative sentiment around the wool price emanating out of China.”

AWI said the rate has seen the value of the dollar appreciate by almost 10 percent against the yuan in just a few months. At the same time, the exchange rate of the U.S. dollar versus the Australian dollar has remained stable, trading in the 0.736 to 0.747 range for two months, offering “no relief at all on the cross rates to Chinese wool traders and manufacturers, “AWI said.

“What is affecting supply at the moment is the fierce drought that continues to bite across many of our wool growing regions,” AWI said. “It cannot be underestimated the damage to supply this will cause in the short term, but if there is no break before too long, this will only get exponentially worse for the longer term.”

AWI added that continued price strength will help alleviate drought affected growers feeding costs to help ensure future wool production.