FOR the first time in more than a decade the adage that rural Australia rides on the sheep’s back has a semblance of truth, with booming wool prices providing welcome income to many farmers fighting crippling drought.

As grain crops withered and cattle farmers hit stock routes in search of precious feed, wool prices this week rose an unprecedented 17 per cent to a 13-year high.

For wool growers, many of whom also grow crops, the record price offers protection against financial ruin.

Grain crop production is forecast to drop nearly $3.5billion this year, but the removal of the wool stockpile a year ago and cuts in production means graziers still running sheep can expect healthy incomes in coming months.

“Growers who are able to produce wool this year will be making quite a lot of money,” Chris Wilcox, chief economist at Woolmark, said.

It is welcome relief for wool growers who have battled to break even over the past decade as the country’s massive wool stockpile was gradually sold off. Many left the industry, moving into beef and crop production.

Australian wool production is forecast to decline 11 per cent to 495,000 tonnes this financial year — the lowest level since 1950- 51. In NSW, where the drought is biting the hardest, production is expected to fall 16 per cent.

“While some in the wool trade expected production to fall sharply, the forecast confirmed people’s fears, and so therefore traders and processors have moved to secure supplies. In particular they believe there will be a shortage after Christmas,” Mr Wilcox said.

“We have a very unusual combination of fairly poor demand but also very low supply and that’s a recipe for this kind of volatility in prices.”

Price rises of nearly 50 per cent since Christmas have been underpinned by strong orders from Chinese buyers, who have been purchasing wool on the futures market for delivery in six months.

Wool was fetching record prices on the Sydney Futures Exchange this week. Wool of an average 21 microns, for delivery next month, rose 6.4 per cent to a record closing price of $12.31.

Tony Wilson, director of Australia’s largest wool buyer, Itochu, said overseas buyers were now buying the fleece from farmers with a drastically reduced supply, forcing up prices.

Mr Wilson said unless there was a protracted war in Iraq, he was confident the high prices could be maintained for finer wools used in clothing production, until at least November.

How the big dry affects wool production:

Fewer sheep shorn as some are sold for slaughter and others die

Lower average wool cut per head

Low lamb survival rates

More shorter wool as growers shear early before selling off sheep

Increase in inferior wool caused by poor nutrition

Lower clean yields due to more dust

Source: Australian Wool Innovation Production Forecasting Committee