12 October, 2009

Wool Production-Conflicting Trends

27th October,2009

Australian Wool Production
or Wool ‘Aint’ Wool- A Commentary by David Boyd

The huge drop in total wool production has masked a massive increase in the production of finer wools.

Over the years knowledgeable commentators have warned about the dangers of addressing wool issues in aggregated terms. The huge spectrum of wool types from coarse carpet making types to silk-like, soft, up-market superfine wools and everything in between, highlights the extent of the range.

This truism is again highlighted by an analysis of movements in production since the most recent peak in total production in 1989/90.

In aggregate terms, in the nineteen years from 1989/90 to 2008/9, total production of merino fleece has dropped by no less than 63%! Or in other words production in 1989/90 was 167% greater than it was in 2008/9.

Yet, within this aggregate, over the same period, production of fleece wools of 19.5 micron and finer have actually increased by 243%. You might well ask how can this be?

First, wools in the 23/24/25 micron band have almost disappeared, with production dropping by 95%. Second, for wools in the middle microns (20/21/22) production has dropped by 54%.

It can be asserted that this movement towards finer wools represents a highly economically rational response by Australia’s woolgrowers as they move production in response to price signals and the premiums attracted by finer wools. This assumes that these premiums can be achieved without a loss of weight (cut per head) that negates the finer wool price premium. This becomes even more relevant given the importance of sheep meat returns and the correlation between carcass weight and wool cuts.

I think the weight of evidence would suggest that notwithstanding all the “bad-mouthing” of the industry, Australia’s woolgrowers are not stupid and this movement reflects well on the flexibility and responsiveness of the industry.
Whilst I have seen no objective evidence, observation would suggest to me that our stud breeders have done a great job in scaling up the size of finer wool sheep on the one hand and lowering the micron of our stronger wool sheep without a commensurate loss of frame or wool cut.

There is, of course another factor at play. These years have seen some very severe drought in much of the production area, albeit at differing times in different areas. There is no doubt that there is a strong correlation between fineness of fibre and nutrition. We really do not know how much of this ‘fining-up’ is due to genetics and how much to nutrition (“hungry-fine”). In addition, a lot of country in the far west of NSW that once produced stronger merino wools, has now been converted to Dorpers, Damaras and goat production.

Whilst growers have lamented the level of wool prices, the fact remains that there continues to be a price premium for finer wools notwithstanding the massive increase in production and there has been no positive price response to the dramatic drop in production at the stronger end. There seems little doubt what the market is telling us at that end of the micron range.

However, at the finer end it could well be argued that the market has held up remarkably well in the face of the massive increase in production.

(I am indebted to AWEX for the provision of the relevant statistics)




Link: Statistics,table and graph.
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