19 June 1998

Outlook is bleak

for wool prices

FARMERS cannot rely on their wool cheques to bolster incomes much in the year ahead.

With the first auction of the new season taking place in Bradford next Wednesday (Jun 24), the outlook for prices is at its worst since 1991.

The British Wool Marketing Board announced an average wool cheque for next season of 62p/kg. This is based on a 28p/kg average balance payment from last year – when the total was 87p/kg – plus the advance for the coming period.

BWMB chairman Alun Evans acknowledges this will be a "great disappointment" to many producers. Hill producers have been particularly hard hit, he says, by a drop in demand for carpets and fierce competition from overseas suppliers.

With 60% of the UK clip exported – either in its raw state or as product – the march upwards of sterlings value has taken its toll, says Mr Evans: "Wool is a world commodity."

The £ has strengthened against the NZ$, Britains major supplier competitor, as well as the German DM, the French franc and the Japanese Yen. Uncertainty in the worlds money markets, particularly in south-east Asia, has complicated sales, says the BWMB.

However, there are 150m fewer sheep in the world than five years ago, reducing annual production by 700m kg.

And there will only be a small carryover of wool into this season, says Mr Evans. By Christmas, 64% of last years clip had been sold. After the final auction of last season on June 3, the clearance rate was up to 94%. That final auction saw some wools making more money than previous offerings.

This, says Mr Evans, is "encouraging". About 3m kg have also been sold forward, the highest ever figure, creating something of a "famine" among buyers, he adds.

The hope is that the 62p/kg price turns out to be a "conservative" estimate. "With so many factors affecting price, there is no alternative but to be very cautious in our pricing policy," Mr Evans adds.

Currency movements hold the key to values. Competition from New Zealand will remain strong, with its annual promotional spend of about £25m, compared with £0.5m in the UK.

Stuart Oldroyd, an auctioneer with BWMB, is not confident about the outlook. "Everyone says the £ is going to weaken, but when?" And with bigger penalties to be imposed for contaminated wool this year, farmers should make extra effort to avoid baler twine getting in the wool, he says.

Andrew Todd, a wool buyer, reckons the wool trade is in for a rough ride if the £ stays where it is. The recent rise in base rates marked a step in the wrong direction, increasing as it did the likelihood of sterling remaining strong.

"The government seems hell-bent on keeping inflation down at the cost of everything else," says Mr Todd.

John Thorley, chief executive of the National Sheep Association, notes that the wool price has dropped more, in percentage terms, than sheepmeat values.

"Before World War Two, the wool cheque was looked upon as a means of paying the shepherd. It does not even pay pocket money now." &#42

Inspecting wool prior to a sale… but farmers have been warned not to expect much from this years clip. Sterlings strength has been blamed.