Worst of wool is over

Primaries of WA general manager Andrew Lindsay is cautiously optimistic about the outlook for wool and believes the worst is over in terms of the tough market conditions encountered this year.

Speaking at last Friday's Australian Association of Agricultural Consultants Outlook Day in Perth, Mr Lindsay said weak conditions over the past year followed a build-up of stocks in China in 2013, caused by a 10 per cent increase in imports of raw wool and a decrease in the export of finished products.

The effects were felt during the course of 2014, when wool imports subsequently dipped by 10 per cent and exports of finished products increased.

"The good news is that although China's imports of Australian wool have dipped, exports are increasing, so things are starting to improve," he said.

Another factor in the wool industry's favour was that global wool production was now at a 70-year low.

He said while low supply would support wool prices at current levels, an increase in demand was needed for the wool price to rise.

Slow improvement in economic growth and consumer confidence in developed economies provided some optimism that demand would increase.

"At the moment, that is not translating into higher clothing sales in the US and EU, but we are hopeful that it will," he said.

He warned that other headwinds remained.

"A lot depends on China, where GDP has fallen, there is a squeeze on credit, increased labour costs and the processing sector is facing environmental issues," he said.

He said an increase in Chinese domestic consumption was important, and possible given rising affluence.

"There are still concern with issues in the Middle East and Ukraine, but we are hopeful the increased consumer confidence elsewhere will translate into better sales," he said.

The free trade agreement with China was a welcome development but had only a small beneficial impact on individual farm businesses, Mr Lindsay told the conference.

The FTA involved lifting tariffs for the first 30 million kilograms (clean), increasing by 5 per cent per year. After that, there would be a 1 per cent tariff if the quota was exceeded. This is in addition to a 287 million kg global quota.

Mr Lindsay said this equated in a tariff saving of just $3m a year.

"It hasn't got the same coverage as the beef, lamb and dairy industry, but the FTA is still of some benefit," he said.

Mr Lindsay also spoke of the diminishing premium for finer micron wools as a result of over-supply.

The availability of 18-micron wool had increased ninefold since 1990 and sub-16-micron wool by 14 times since 2000.

He said this oversupply would eventually be corrected and the premium would return, but said this would take some time.