Auckland, NZ, Dec. 18--Just how much the soaring Kiwi dollar is hurting farm incomes is obvious when you compare it with the price of wool.
Over the past seven weeks the Kiwi has risen 5.5 percent against the United States dollar--while the strong wool index has nearly matched this, falling about 5 percent.
After the October 30 sales the strong indicator, the main type of New Zealand wool, stood at $4.07 and the US-Kiwi cross rate was 61.25. Last week the indicator had fallen to $3.87, and the cross rate had risen to 64.77.
Currency movements have also impacted on the fine indicator. This has fallen from $10.81 on October 30 to $10.25 on the auction on December 11; the medium indicator has fallen from $5.84 to $5.62.
Apart from strong, carpet style wools, the immediate outlook for fine and medium wools is not that bright, according to Peter Whiteman, of exporter Masurel Fils.
"Buyers from China have become very quiet," he said. This is not unusual at this time of the year as any wool purchased now for hand-knitting and related uses had little chance of being processed for domestic sale before the northern hemisphere summer. "It can be extremely hot in China in spring and summer and the last thing consumers want are woollen garments," he said.
He expected Chinese demand to pick up again from March, though typically it was most active between August and October.
Whiteman said many farmers, sitting on cash from good lamb sales, were holding back wool hoping for prices to rise. "I think they are wrong. Wool consumption in Europe and the US has moderated and the Kiwi dollar may rise further.
"I don't see any upside in wool to February at the earliest."
The one exception was solid demand from Australian and New Zealand carpet mills. These were operating at near capacity to produce carpets for the booming housing and apartment markets in both countries.
European wool buyers were still active in carpet wools, though not as much as six months ago. Again, currency was a problem.
After initial problems when it was launched, the Euro has rebounded from around 90 to the US dollar to more than 1.20. Though this made it much cheaper for Europeans to buy New Zealand wool, it had made it much more difficult for them to export the processed carpet and other products profitably to the US and similar markets.
Other buyers, including Iran and Nepal, were also encountering currency difficulties in buying New Zealand wools. Their problems had been made worse by falling demand and pressure from customers to pay less for their carpets.
Whiteman said buyers had driven prices for their carpets down for some years. It appeared the stage had been reached where these nations couldn't lower their prices any further.
"The outlook for fine wools does not look bright," he said. "This market had been driven by early-stage processors of woollen goods' top makers and spinners. They had continued to buy wool to produce yarns to keep their machines running, and as a result had run up huge losses. This had become unsustainable and many processors, especially in Europe had been forced to mothball or close many of these machines permanently.
"Essentially the fine wool market had been production driven, and this era has now ended. It's quite depressing."
However, Whiteman said the outlook for New Zealand's strong and crossbred wools looked okay, and prices would rise when the currency changed direction.
