But analysts say prices won’t drop off a cliff – some are tipping the slide could end only about $1 below current levels – and there’s still scope to lock in prices above 1100 cents a kilogram for finer wool types for much of 2008.

Analysts say while wool has plenty of factors working against it, including a slowdown in economic conditions around the world, a 24-year high in the exchange rate and a retailer backlash over mulesing, a supply shortage will limit the potential for downside in prices.

The market has been dropping little by little for some weeks now with last week’s two per cent drop convincing several key commentators a solid downward trend is underway.

The Eastern Market Indicator (EMI) fell 18 cents overall or 1.9pc to 920c but lost only 4c in US dollar terms, with more than one in five of the 48,000 bales offered being passed in.

Finer wools resisted the big falls but those 19 micron and broader generally dropped 20 30c.

Platinum Agribusiness principal Bill Mitchell said it was hard to see just what could turn the market around.

“I suppose a drop in the Australian dollar would certainly help but economic conditions have always been a great predictor of the market overall and they are deteriorating without doubt,” Mr Mitchell said.

“We may be only halfway through this economic credit crisis driving the world economy.”

However, he said the shortage of wool supply could mean the drop was not as severe as previous falls – in fact, he believes it could be just 100c below the current market.

“It is always dangerous to say (where the market will bottom) as the market sentiment often drives prices lower than they should be,” Mr Mitchell said.

“Of course, there is always the chance that something will suddenly change for the better, but at this stage, aside for exchange rates, I have no idea of what that could be.”

Mr Mitchell said growers could still lock in what were historically good prices for this year’s clip.

Mr Mitchell said many growers had already protected their position through forward contracts and “collar products”, which allowed growers to lock in a minimum price but still capture upside in prices.

For example, he said, 19 micron forward prices could still be secured at better than 1100c/kg clean for most of 2008.

Alternatively, a 1050/1200c/kg collar still cost only 25c/kg.

He said most clients who’d embarked on forward contracts had locked in on average about half their clip.

Callum Downs Commodity News analyst Malcolm Bartholomaeus is using the long-term average for the EMI of 759c/kg as a benchmark of market resistance.

“(But) I would be very surprised if it fell that far so I think Bill (Mitchell) and I agree on that one,” he said.

Mr Bartholomaeus said historical cycles and global economic activity were a strong predictor of prices.

“Wool has always been more affected by consumer sentiment and the economy,” Mr Bartholomaeus said.

“It is not an industrial and consumer good like grain so unfortunately has not been trading at the all-time highs that grains have enjoyed.

“Mind you, it has been trading at very high levels in US dollar terms and the finer wools are holding the EMI up to a certain extent .”

Mr Mitchell agreed, noting a brief study of the market showed it had been about three years since the 2005 market low and that global economic conditions were the best measure for wool’s trends.

“The next few months will decide just how deep this credit crisis is heading and whether the US economy becomes the flat Japanese economy of recent years and if China will overtake the US as the world’s largest economy,” Mr Mitchell said.

“That might not be a bad thing for wool.”