ABARE Research Economist Dr Caroline Gunning-Trant told the conference the improved conditions were prompting producers to begin rebuilding their flocks.

“Wool prices are forecast to remain strong in 2008-09 as the wool supply-demand balance remains finely balanced,” she said.

It will take a couple of years before the expected expansion in the sheep flock flows through to an increase in the size of the Australian wool clip.

”However, over the medium term wool prices should decline in real terms as the Australian wool clip expands,” Dr Gunning-Trant said.

Demand for wool exports is expected to be maintained, with the economy of China -  Australia's largest export market – forecast to grow strongly over the medium term.

Australian Wool Innovation Market Economist Paul Deane supported ABARE's view.

“Supply will be a major positive influence on wool prices in 2008,” he said.

Mr Deane said developments in key trends of consumer purchasing patterns are providing opportunities for Australian merino wool. Consumer interest in the environment and ethics, consumer “wellness” and “conscious consumption” are some of the trends influencing consumption patterns.

Rod Williams, the CEO of clothing maker Drizabone, highlighted recent product innovations in the wool industry.