Australia's wool clip is expected to shrink further in the coming year. However, prices will rise by 6 per cent. The wool market was galloping along until February when demand from China slackened and the Australian dollar appreciated in value. Producers responded by withholding wool, leading to smaller offerings at auctions.

Declining growth in Chinese retail garment sales and the ongoing shift to synthetic fiber apparel in major developed economies are expected to constrain demand for finer wool. In the 10 months to April, Australian wool exports to China fell 3 per cent year-on-year. Demand for wool apparels in the US and the EU has been sliding since 2010, reflecting below-average economic growth and an ongoing shift to synthetic fibers.

Demand for Australian wool has also been weak during the June quarter to date, constrained by tighter access to credit for Chinese textile manufacturers. Australian wool exports declined by an estimated 2 per cent in 2013–14 to 430,000 ton greasy with shipments of superfine greasy wool (19 microns and less) jumping by about 15 per cent and exports of broader wool falling by around 20 per cent. Further reductions in shorn wool production are expected to reduce wool exports by 7 per cent in 2014–15.