High global grain prices and continuing dry conditions in some parts of eastern Australia are contributing to a smaller size of the national flock and thus resulting in a lower overall production.

China is, and will, continue to be the largest consumer of Australian wool accounting for two-thirds of the country’s wool exports. However, in 2008-09 supply constraints will lead to a slash in volume of raw wool shipments. The volume of Australian wool exports is set to decline to 459000 tonnes – a fall of 6.7 per cent from last year. Export earnings are forecast to fall by 12.8 per cent to $2.4 billion.

The effects of the US economic turmoil have hit consumer sentiments in OECD economies. Expectations of weak future demand for woollen products in the US and EU are likely to lead a softening of demand for raw wool in 2008-09. This will exert a downward pressure on prices.

The price decline can be attributed to softening demand caused by the global economic downturn combined with a strong Australian dollar relative to the US dollar which made wool more expensive for the importing countries.

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