Wool Sector Under Pressure as Costs Soar and Demand Plummets
The profitability of sheep farming in New Zealand is facing a serious threat as shearing costs for crossbred sheep continue to rise while wool prices hit record lows, according to ANZ’s latest Agri Focus report.
The report outlines how the returns for strong wool are “absolutely dismal”, and a meaningful recovery is unlikely until significant excess stock clears from the market. Throughout the wool supply chain, inventory has reached critical levels—from in-market holdings to local storage facilities and even woolsheds where raw product is starting to pile up.
Synthetic Carpets Undermine Wool’s Value Proposition
Despite wool’s eco-friendly credentials, demand for coarse wool remains sluggish, primarily tied to carpet manufacturing. Synthetic carpets continue to dominate due to their affordability, placing wool at a competitive disadvantage—especially in the current global economic downturn.
The report stresses that although environmental sustainability may eventually boost wool demand, the market must first succeed in telling wool’s story to a broader audience. This challenge is compounded by the fact that younger generations, who are more environmentally conscious, are still renters rather than homeowners and don’t yet influence flooring choices.
Even projected 10–15% declines in house prices are unlikely to shift this dynamic in the short term, as homeowners remain reluctant to invest in upgrading carpets.
Auction Delays and Contract Cancellations Deepen the Crisis
While local wool auctions halted through April and May due to pandemic disruptions, the report emphasizes that the core issue lies in weak end-user demand, not logistics. Contracts agreed upon earlier in the year are now being reneged, further fueling uncertainty in the market.
Auctions resumed in late May, and recent activity in the South Island showed stable prices for most crossbred wool types, despite a nervous start. According to PGG Wrightson Wool, the new season’s mid-micron wool from Canterbury drew strong interest thanks to its superior quality.
Fine Wool Also Faces Headwinds
Fine wool, typically used in high-end fashion and performance textiles, is also unlikely to escape the downturn. These products are often premium-priced, and in today’s cautious spending climate, marketing skills will be tested like never before.
However, the report remains cautiously optimistic, citing the strong track record of companies selling fine wool products as a reason to believe they can weather the storm.
