Cautiously optimistic – Australian wool in 2026

Welcome to 2026, it is heartening to start the year on a positive note with regards to the wool market, but I would also like to acknowledge the adversities that some of our growers faced over the summer period including those impacted by flooding, fires and dry conditions. In this month’s report, I will be taking a guess at a number of factors that I believe will impact the Australian wool industry over the next 12-months.

After a bruising couple of years for woolgrowers and the broader industry, the new selling season has pleasingly opened with positive momentum. By the end of February, the Eastern Market Indicator (EMI) breaking through the 1,700c/kg clean mark, its highest level since 2019, after rising on 19 of 22 selling days since early November. In USD terms, the EMI also touched multi year highs, underscoring demand strength beyond currency effects.

The single biggest story shaping the year ahead is supply. The Australian Wool Production Forecasting Committee expects shorn wool production in 2025/26 at ~244.7 mkg greasy, down 12.6% YoY, with cuts to output in every state as low flock numbers and multi year seasonal pressure filter through. AWTA testing to end November showed volumes down 10.4%, reinforcing the message that the pipeline is tight.

Tight supply is not only a 12 month theme. Multiple datasets point to a smaller sheep base, including Meat and Livestock Australia (MLA) reporting that the flock eased to near low 70 millions in 2025, while independent analyses flagged 100 year low production markers during 2024/25. Even if retention improves, rebuilding takes time, so 2026 will remain supply constrained, something which our customers might be starting to fully appreciate after a number of years of being warned by the Australia industry.

Encouragingly, AWI’s monthly and weekly reports through December to January noted broader buyer interest, with mid micron Merino demand in particular helping sustain gains into early 2026. That breadth of demand reduces reliance on any single micron or region and improves the market’s resilience across consumer segments.

China remains pivotal to our industry, given we are currently selling around 85% of our national clip to them. Reports through late 2025 highlighted a lift in Chinese orders for wool, with uniform programs and activewear being among the main drivers. The recent rally in the EMI has been consistently linked to this firmer Chinese demand laid over scarce supply.

However, it should be noted that Chinese textile inventories have been reported at historic lows, which can fuel buying surges; but this also means that once replenished, imports could taper off abruptly. If this peak in demand slows, prices could soften quickly, something that would be a blow to our industry and its current increase in confidence.

This is why WoolProducers has spent considerable resources in recent years focusing on trade diversification, as a risk mitigation strategy for our growers, to reduce our exposure to a single market and strengthen demand. We will continue this trade diversification work in 2026, with further exciting details to be announced in the coming months on our successful bid for the Commonwealth’s Accessing New Markets Initiative (ANMI).

As always, currency and international trade relations will play a role in dictating the market, and the broader global textiles manufacturing sector. In early 2026, the USD based EMI reached multi year highs even as AUD prices eased slightly. A strengthening AUD could reduce competitiveness and potentially trim auction values, however given geopolitical tensions and the unpredictable international trade policies that are currently being thrown about, I am not game enough to predict what may happen in the currency market or geopolitical space this year.

Sustainability, including animal welfare credentials are continuing to yield premiums. Recent analysis shows Responsible Wool Standards (RWS)/non mulesed premiums attracting premiums of around 100c/kg clean (median) across Merino and even crossbred wools, which is a material uplift that can change a sale average when multiplied across a clip. Brand procurement policies and guidelines in many consumer markets continue to preference certified non mulesed supply, it is therefore pleasing to note that Wool Industries Australia is looking to take the lead on developing a strategy to address the mulesing issue in 2026.

At the production level, grower confidence indicators seem to have turned a corner. Rabobank’s Rural Confidence Survey (October 2025) recorded the highest net sentiment in 18 months, with sheep producers the most upbeat cohort, a reflection of improved seasonal conditions in some wool growing areas and stronger livestock/wool pricing signals. While that shift won’t magically lift production this year, it is definitely a step in the right direction.

While better wool prices are certainly welcomed, we are still in competition with strong sheepmeat prices, which in recent times has encouraged growers to prioritise prime lamb or mutton over wool. If sheepmeat demand remains strong, wool may lose further share, resulting in an increasing tightening of supply.

The autumn break will play a pivotal role in many key wool producing zones, with numerous seasonal models pointing to warmer than average days and nights across much of Australia in autumn, coupled with below median rainfall being predicted for southern regions. This will result in stretched feed budgets in key Merino zones if relief is late which will cap flock rebuilding speed and support the ‘tight supply’ narrative into mid year.

We can cautiously hope that 2026 will be a seller’s market, underpinned by scarce supply, firmer demand, and rising premiums for accredited wool. We will also keep our fingers crossed for kinder and more ‘normal’ seasonal conditions across the country to help give our growers a chance to build on the green shoots of confidence that have recently been seen, with the view to start rebuilding and reinvesting in our industry. Wishing all our growers the very best for the year ahead.

Jo Hall

CEO, WoolProducers Australia