Natural fibres: September quarter 2020

Chris Mornement

Cotton prices are forecast to fall 6% to US67 cents per pound due to high stock levels and competition from synthetics. Wool prices are forecast to fall 28% to 1040 cents per kilogram due to lower consumer demand for woollen apparel.

Natural fibre prices to fall in 2020–21

COVID-19 control measures have reduced consumer demand for apparel and disrupted all parts of the clothing supply chain, driving up stocks of unsold textiles and raw fibres. As a result, wool prices are forecast to fall to 12-year lows (in real terms) and cotton prices are forecast to reach their lowest levels (in real terms) since 2001–02.

The world cotton price is forecast to average US67 cents per pound in 2020–21, down by 6% from 2019–20. Interruptions to cotton mill operations during 2020 and reduced retail demand are expected to drive up stocks of raw cotton in key exporting and importing nations.

The Eastern Market Indicator price for wool is forecast to average 1,040 cents per kilogram clean in 2020–21, down by 28% from 2019–20. Wool prices are forecast to be lower due to reduced demand for wool in textile manufacturing. This fall is driven by lower consumer demand for woollen apparel and lower prices for substitute fibres.

Eastern Market Indicator, Cotlook 'A' index, real terms, 1995–96 to 2020–21
f ABARES forecast.
Sources: ABARES; AWEX; Cotlook

Wool production steady in 2020–21

Australian shorn wool production is forecast to remain steady in 2020–21 at 280,000 tonnes, after falling by 5.5% in 2019–20. Low sheep numbers carrying over into 2020–21 are expected to further reduce the number of sheep shorn nationally to 65 million. Average wool cut per head is forecast to rise by 2.9% due to improved seasonal conditions throughout most wool-growing regions.

Prolonged dry seasonal conditions across most wool-growing regions and strong demand for sheep meat (relative to lower demand for wool) caused a total reduction in the number of sheep shorn from 79.8 million in 2017–18 to 68.4 million in 2019–20. Recovery in the number of sheep shorn will rely on flock rebuilding.

Average greasy wool cut per head, 2008–09 to 2020–21
Average greasy wool cut per head is forecast to increase in 2020–21 to 4.26kg. This will remain below the 10-year average to 2017–18 of 4.48kg. However, it will be a significant improvement on the 30-year lows of 4.14 kg reached during the 2018 and 2019 drought.

Sources: ABARES; Australian Wool Production Forecasting Committee

Average wool cut per head in 2020–21 has been revised up since Agricultural commodities: June quarter 2020, due to improved seasonal conditions in New South Wales, southern Queensland, Victoria and Tasmania. Continued rainfall and pasture growth could see average wool cuts revised higher in December or March. However, this upside is constrained by sheep currently holding drought-grown wool in their fleeces. For example, sheep brought to New South Wales from Western Australia in the first half of 2020 will still have 3 to 6 months of wool grown in dry conditions.

World cotton stocks to rise due to lower consumption

World cotton stocks are forecast to rise to 22.3 million tonnes by the end of 2020–21, up by 4.9 million tonnes since the start of 2019–20. This rise in stocks is expected to be largely driven by lower consumption of raw cotton as a result of COVID-19 control measures.

World cotton production is forecast to fall by 5% in 2020–21 to 24.9 million tonnes, due to price-induced area reductions in the United States, India, Pakistan, China and Brazil. Consumption is forecast to increase by 9% in 2020–21 to 24.1 million tonnes, still 2 million tonnes below 2018–19 levels.

World cotton trade is expected to increase by 3% in 2020–21 to 9 million tonnes, driven by recovering milling activity in major importing countries such as China, Vietnam, Bangladesh and Turkey.

Australian cotton production to rise

Australian cotton production is forecast to rise in 2020–21 to 2 million bales, after falling to a 12-year low of 590,000 bales in 2019–20.

Above average autumn and winter rainfall throughout much of New South Wales and southern Queensland has replenished soil moisture profiles in cotton-growing regions. Increased dam storages in southern New South Wales offer favourable irrigated planting prospects. According to the Bureau of Meteorology (as of 30 August 2020), the Murrumbidgee rural system is 72.6% full, compared with 42.6% this time last year. More substantial rainfall will be needed to significantly lift the irrigated planting prospects of northern New South Wales, with the Gwydir and Namoi rural systems around 15% full. St George and Leslie dams in Queensland recorded some recharge during autumn 2020. However, these dams are smaller determinants of water supply for Queensland irrigators compared with on-farm storages.

According to the Bureau of Meteorology spring 2020 rainfall outlook, issued on 3 September 2020, NSW and QLD cotton-growing regions have at least a 70% chance of above median rainfall. The 70% likely shift into La Niña during spring could also offer continued above median rainfall during the planting window and growing period.

Storage levels for key cotton-growing regions, New South Wales and Queensland, August 2019 to August 2020
Storage levels in the Murrumbidgee, Gwydir and Macintyre rural systems have increased since the same time last year. The Murrumbidgee system is up to 72.6% of capacity, Gwydir up to 15.9%, and Macintyre is up to 32.7%.
Source: Bureau of Meteorology

Opportunities and challenges

Weaker wool demand to drive up stocks

Falling wool prices and reduced export demand are driving stock accumulation in the Australian wool market. Control measures associated with the COVID-19 pandemic have caused significant disruption to Australia's export markets, especially those in Europe. As a result, 96% of Australian greasy wool exports went to China in the June quarter of 2020, leaving the wool industry more exposed than usual to single market risk until other export markets recover.

Before the COVID-19 pandemic affected world markets, Chinese demand for greasy wool imports had already started to decline in mid-2019 as drought-reduced supply led to substitution to lower-cost fibres (see Agricultural commodities: March quarter 2020). Lower demand for greasy wool from a market where Australia typically exports 80% of its clip resulted in dramatic falls in auction prices and clearance rates. With fewer bales passing auction and lower export demand, greasy wool exports to China in the second half of 2019 were 25.5% lower than the average from the previous 5 years. As a result, stocks of unsold wool began to accumulate.

Number of wool bales tested and sold, and share of tested bales that were sold, 2002–03 to 2019–20
The volume of wool bales sold at auction tends to average around 83%. This share falls below this average level during times of stock accumulation. This measure can be used to indicate significant stock accumulation during 2019–20.
Note: Average weight for wool bales is 180 kg. Average share of sold bales in tested bales is 0.83. Sources: ABARES; Australian Wool Testing Authority; AWEX

During normal market operations, an average of 83% of all wool tested in bales will be sold through the auction system. The remaining 17% either reaches export through private treaty merchants and marketing cooperatives, or remains held in stocks either on-farm or in storehouses. During times of lower auction clearance and stock accumulation, the share of bales sold at auction generally falls below the average. The share of sold bales in tested bales fell to 70% in 2019–20. This was the lowest fiscal year average since 2002–03, when stocks briefly began to rise again.

Taken in isolation from other market developments, this 13% difference points to at least 215,000 bales being added to stockpiles as a result of lower auction sales. This number does not account for stocks held on-farm. Industry estimates of the current stockpile are in the range of 300,000 to 400,000 bales. This stock is expected to continue growing for the remainder of 2020 while prices remain low and export demand remains weak.

Consumer demand for woollen apparel may be slow to recover, due to continued COVID-19 control measures and reduced incomes in key consumer markets. This will result in a slower recovery in demand for Australian greasy wool exports. This is expected to keep prices and volumes down for the short to medium term. Stock accumulation is the natural consequence of the current global situation. Stockpiles of wool accumulated during this time may take several years to clear, so can be expected to place downward pressure on prices over the medium term.

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Last reviewed: 15 September 2020
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