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Beyond the Bale : April May 2009
April – May 2009 Beyond the Bale opinion some positives despite F state of global marketplace ABARE agricultural commodity analyst Caroline Gunning-Trant talks wool in the medium-term. orecasting the way forward for Australian wool is never easy. After a year of steadily increasing prices in 2007, the global economy has taken a sharp downturn since mid-2008, taking the demand for wool with it. While the industry may remain subdued for the next 12 months or so, there is still light at the end of the tunnel. the global recession has hit retailers around the world very hard. clothing purchases are made from people’s discretionary income and when there is economic uncertainty, those purchases are among the first to be scaled back. this has been evident in countries that are major consumers of woollen apparel, including the Us, the European Union, china and Japan. Not surprisingly, the impact of this has been felt further up the supply chain and the demand for Australia’s raw wool has waned. it is mainly for this reason that we have seen the price of wool fall as much as we have. For many years now Australian wool producers have been adjusting to the declining price of wool in real terms (after adjusting for inflation). Many have diversified their operations to include crops and sheep meat to benefit from the higher relative prices of those commodities. Unfortunately, the dry seasonal conditions of the past several years have made production of any kind increasingly challenging and there has been a steady reduction in the sheep flock as a result. Despite high slaughter numbers, lamb prices have remained high, giving producers an incentive to continue to produce lamb rather than wool. Between the global recession and the strong prices being offered for lamb, it is no surprise wool prices and production are projected to remain low in 2009-10. however, there are a couple of factors buoying wool in these short-term stormy waters. one is the sharply weaker Australian exchange rate, which has provided support to Australian grower returns. the other is the continued demand from china, Australia’s largest export market and the world’s largest wool apparel consumer. While Australian wool exports to china are slightly lower than at this time last year, continued (albeit reduced) economic growth in china will help sustain demand in the immediate future. Without these two important factors, wool prices could be far lower. looking further ahead, things are more positive. there is no reason to assume that demand for wool will not recover to where it was prior to the global recession. the global economy is widely expected to start to improve by the end of 2009 or early in 2010. Under this scenario, the demand for clothing, and woollen apparel more specifically, should start to rebound toward the end of 2010. this period coincides with winter in the northern hemisphere and also allows some time for consumers’ confidence to strengthen as positive economic signals emerge through the year. With lower wool production expected for the next couple of years, a resurgence in demand will have a positive effect on prices. the Australian wool industry needs to look beyond the short term. Australia may no longer ride on the sheep’s back, but wool still has the potential to contribute substantially to Australian agriculture and the wider economy. Judy Goggin, ‘Billilingra’, Bredbo, nsW reader’s photo Would you like to see your on-farm photo published in Beyond the Bale? send it to email@example.com and the best grower photo will appear in the next edition. paul Zanetti 15
February March 2009
June August 2009