The wool market has improved yet brokers are concerned about margins, volume

Tight cashflow for sheep producers has led to an increase in Wool Advances, as brokers raise concerns about slipping volumes.

The wool market has made some positive moves as the year has opened up, especially on medium wool categories.

But in a sign of how tight cashflow is on many farms, brokers have reported a rise in growers requesting cash advances to pay for shearing.

It comes as the industry are concerned by margins being made along the supply chain, and the retraction in the flock and wool clip volume.

In the past weeks’ auctions the Eastern Market Indicator gained 8c/kg to sit at 1215c/kg.

This puts the EMI 52c/kg, or 4.5 per cent, higher than at the same time last year.

However, the volume of the offering is 16.3 per cent lower, at 180,392 bales, year-on-year.

Following a dry and costly season in many regions, brokers report growers are using Wool Advances – where part of a wool cheque is paid to the grower by the broker ahead of the sale of the growers’ clip – are being taken up “at least double the rates” of past years.

AWN Victoria state manager Kelvin Shelley from Geelong said tough seasonal conditions had seen a big lift in the number of growers using this facility to allow them to manage cashflow and pay shearing costs.

“We have seen more of it in the past 12 months due to cashflow, with many people selling lambs later than normal and the tough seasons,” he said.

Shearer Sam Bacon in action at Bendigo Sheep and Wool Show. More growers are using Wool Advances to pay shearing costs, before the sale of their clip.Picture: Zoe Phillips

In the past week, while wool sold “very well”, particularly for crossbred lines, finer categories hadn’t enjoyed as much of a lift and there was not a significant improvement in retail demand, he said.

Mr Shelley was concerned about the reduced volume of wool nationally. “It is a massive amount of wool and we hope there is not more reduction,” he said.

“It is phenomenal, the amount of stock that has been sold off pre-Christmas, and conditions are still very tight,” he said.

While growers were still disappointed with wool prices, Mr Shelley said there was a degree of positive sentiment in the past four weeks.

National Council of Wool Selling Brokers of Australia executive director and Mecardo analyst Robert Herrmann said while the recent price movements were positive, “people are hesitant to get too optimistic”.

Given volume was so far down, prices should be higher, he said. “Demand just isn’t there at the moment,” he said.

Brokers – and the whole supply chain – were also feeling the pressure.

“It is not just growers, we need to see more returns along the whole industry,” he said.

Wool prices had been lower but as costs rose, profitability was the issue, he said, but noted many modern Merinos remained profitable.

“But it is the first time I have seen so many issues facing the industry at once,” he said.

“For brokers and exporters... it is a volume-driven industry, if the volume keeps contracting, then that part of the industry has to contract too.”