Australian wool poised to recover from drought

Recent rainfall and a strong Australian dollar are building a recovery for Australia's A$2.5 billion ($2.1 billion) a year wool export industry after the country's worst drought in 100 years, leading wool groups say.
The Eastern Market Indicator (EMI), the primary standard by which wool is measured by the Australian Wool Exchange, has been steadily rising in the last 12 months, mirroring a rise by the Australian dollar over the same period. Prices have also been buoyed by tight supply - and demand is good, industry leaders say.
"Wool is back on the catwalks, back on the shelves," Wool Producers Australia executive director Greg Weller said.
A swing back to wool by fashion trends and better prices for wool are good portents for a recovery in the Australian industry, but re-building the flock will take time, industry leaders said.
The industry's main marketing body Australian Wool Innovation (AWI) last week estimated that the Australian flock had fallen to 87 million head, down 6 percent on the year before, after drought triggered an increase in the sale of sheep for slaughter. This compared with Australia's flock of 106 million head in 2002 and well over 150 million in past decades.
"There shouldn't be an expectation that the wool is going to increase supply ...- there needs to be a certain amount of time for flocks to build up," Weller told Reuters. The EMI is now up 25 percent on a year ago at 932 cents a kg clean, after breaking through the confidence-building level of 1,000 cents a kg in recent weeks.
Higher prices may provide an incentive for farmers to continue to produce wool instead of slaughtering sheep for meat, McLachlan said. "At around $A10.00 clean per kg, the world wool industry can expect the supply of Australian wool to be maintained and improved," AWI Chairman Ian McLachlan said.
"We're getting good signals, a great interest in renewable fibres like wool ...- but people need to understand that if growers are going to continue to produce that amount, prices need to remain strong," said Weller. AWI recently forecast that wool production would fall by 4 percent to 410 million kilograms in the 2007/08 season, which began this week.
But the wool industry has become more competitive, with finer wool in high demand among fashion retailers. "Wool's moved into a new area of consumption; it's a lighter product because obviously we have other systems of keeping us warm," he said.