NZ lamb wool prices slump amid weak demand during peak production period

New Zealand lamb wool, which was trading at a record high last season, has slumped by more than 50 per cent at recent auctions.

New Zealand lamb wool, which was trading at a record high last season, has slumped by more than 50 per cent at recent auctions amid weak demand during the peak production period.

The price for 30-micron lamb wool dropped to $3.25 a kilogram at last week's North Island auction, down from $3.60/kg the previous week and $7.25/kg at the same time last year. The price fell to $3.50/kg at the South Island auction, from $3.90/kg the previous week and $7.35/kg a year earlier, according to AgriHQ. Lamb wool reached record highs of $7.50/kg at auction last season.

New Zealand is in the throes of its main sheep shearing season which runs from December to early February. The fibre was in hot demand last season, stoked by a fashion trend for fake fur jackets. However market conditions are less buoyant this season, as China, New Zealand's largest export market, sits on high levels of finished inventory amid a shrinking manufacturing sector, while demand remains weak in Europe following the Brexit vote, and the fibre continues to face stiff competition from synthetics.

"The market is currently struggling with both supply and demand forces against growers' favour," said AgriHQ analyst Shaye Lee. "Buyer appetite for lamb wool remains minimal."

Lee said the downward pressure on prices was visible across all wool types at the latest auction, with coarser types and wool with more colour discounted more heavily. A strong local currency was also weighing on weak market sentiment.

Auction prices for 39-micron strong crossbred wool fell to $3.30/kg from $5.75/kg a year earlier in the North Island, and dropped to $3.48/kg from $5.70/kg last year in the South Island, AgriHQ said.

The weak prices have seen some growers reluctant to sell, with 2,100 bales withdrawn from last week's auctions, reducing the total number of bales on offer to 11,800.

Despite the lower than anticipated volume, the auctions achieved a clearance rate of just 64 per cent, lower than the season-to-date average of 70 per cent and the 91 per cent clearance rate a year earlier.

"At these subdued prices, there could be a further reduction in volume of bales reaching the market," said AgriHQ's Lee. "Some will be exported as woolly pelts instead, as it becomes difficult for growers to cover their shearing cost."

If they are able to, growers may hold on to their wool this season, hoping for the market to turn in the near future, she said.