Domestic price of wool

IBISWorld expects that the domestic price of wool will push up 3.7% during 2024-25 to 347.3 c/kg. Production volumes are expected to remain relatively stable over the year, as sheep flocks recover slightly. Demand from China, accounting for a 40% of New Zealand's wool export, will slide as US tariffs hinder their clothing manufacturing activity. Nevertheless, strong wool prices will carry overall wool price growth, especially as demand from India ramps up. Domestic manufacturing will also encourage price growth, as wool product exports like rugs and clothes spike from a low benchmark.

The domestic price of wool is volatile and is influenced by global factors. For example, a large proportion of globally produced wool is sold to Asian textile manufacturing countries like China. New Zealand benefits from strong export demand for wool, as it is one of the world's largest wool producers. Prices fell sharply over the two years through 2020-21 due to the COVID-19 pandemic. In addition, global exchange rates influence demand and, in turn, prices for domestic wool. For example, the depreciating New Zealand dollar has improved the competitiveness of domestic wool exports, placing upwards pressure on local wool prices.

Developments in the Meat Processing industry also affect the domestic price of wool. As sheep farmers choose to either maintain their animals for wool production or to sell them for slaughter, wool production is strongly linked with sheep meat production. If the domestic price of sheep meat rises, it encourages sheep farmers to sell their animals to meat processors rather than keep them for wool production. This trend has been stark, with farm revenue shifting from being 10% derived from wool in the early 2010s, to now only 4%, being replaced by lamb and cattle meat.

The local supply of wool has also been lower in recent years due to drought-stricken flocks, keeping prices high. A slow rebuild will steady prices in the current year. Inflationary pressures have pushed prices up more broadly, as expenses reached over $5.93 per sheep sheared for farmers in 2023-24. Cross-bred wool production remains not profitable. Overall, lower flock counts and the dominant popularity of 'strong wool' over the past five years have kept prices ticking up. IBISWorld forecasts the domestic price of wool to lift at a compound annual rate of 0.9% over the five years through 2024-25.