Market Focused Wool Production

Successfully producing and marketing wool can be one of the most challenging but rewarding roles for a sheep producer. Taking a market focus to production is the basis for: planning and operation within the wool enterprise; better management of price risk; selling to advantage; and improved profitability. This module provides a background to wool enterprise planning and is designed to assist with on-farm decision making, no matter what production and marketing processes are used. It describes the influence of fibre characterisation on price, presents options for estimating wool value and offers a range of selling options. There are three procedures that form the basis for decision making in wool production, harvesting and marketing. It introduces Woolcheque and other industry tools for valuing wool. Taking a market focus to production will help maximise the net return per hectare from wool.

Know the features of your wool influencing demand and price

Background information The physical characteristics of wool that determine the price you receive are heavily influenced by genetics, level of nutrition, time of shearing, contamination such as vegetable matter, and the way in which the wool is prepared for sale. In addition, any given wool type is subject to supply and demand factors that may alter within a wool selling season (short term factors) or between wool selling seasons (long term factors).

Introduction

The wool pipeline from sheep producer to customer is long and complex. A simplified outline is presented in tool 2.1, figure 1. Around 80% of Australian fleece wool and pieces passes through the worsted pipeline based on wool fibres longer than 40mm (‘combing types’) that lie parallel in yarn. The balance is made into woollen yarn used in knitwear, based on wool fibres shorter than 40mm (‘carding types’) that do not lie parallel to each other.

Influence on price

Prices received for raw wool are heavily influenced by its physical characteristics. This is shown over three selling seasons (2003–04 to 2005–06) in tool 2.2, figure 1 for superfine wool and tool 2.2, figure 2 for mid-micron wools. These fibre characteristics are influenced by flock breeding programs. Tool 9.10 in Gain from Genetics – the on-farm fibre measurement (OFFM) calculator – can help you assess the expected financial benefits of applying OFFM to your wool enterprise, separated into clip preparation, breeding and selection. Pasture management throughout the year and shearing date can also be important influences on wool characteristics.

Short-term wool market factors

Wool is a global product. Supply and demand factors can influence the raw wool market after you are committed to producing a particular type and style of wool in the current season. These may occur when:

  • Stocks of wool in the form of tops and yarn build up in warehouses and spinners slow down purchases of wool top, with corresponding implications for raw wool demand.
  • The quantity and quality of wool  on offer does not match current buyer demand.
  • Major trading currencies shift, eg, a sudden rise in the Australian dollar may cause wool prices to decline at short notice.

Wool brokers and advisers have current information to help you better understand these short-term factors. Buyers also blend fleecewool to meet the specifications of a processor order. This is done because:

  • Most mill lots are large and cannot be obtained from one sheep producer, or fleece wool of one type
  • Processing efficiency often requires wool to be of different types
  • It offers processors the opportunity to maintain continuity of supply of a similar blend throughout the year.

The practice of blending affects the supply–demand cycle. Wool can be blended with different types grown within Australia and also wool from other countries to maintain a consistent, continuous supply of a particular blend. This may explain price volatility for the same types of wool at auction on the same day and as processor orders are filled.

On farm fibre measurement

Long-term wool market factors

Some factors affect the market gradually, over a year or more. This provides an opportunity to respond with the type of wool produced. These factors include:

  • An increasing consumer preference for light-weight apparel fabrics. Spinners and weavers have responded accordingly by increasing their demand for finer wool.
  • Fashion trends and economic growth in the major industrialised countries. This affects consumer demand for textiles.
  • Wool competes with synthetic fibres (polyester and acrylic), and natural fibres (cotton, cashmere, mohair and silk).
  • Long-term trends in currency exchange rates.

Key decisions, critical actions and benchmarks

Sheep producers choose the type of sheep and wool that best suits the farm’s physical characteristics, management operations and production environment. Once a micron range and breeding line are selected, find out what characteristics or specifications processors require within that wool type, particularly those wool characteristics influencing price. AWEX market reports and wool brokers’ reports and advice are all sources of information that can be used to research the price implications of proposed changes to the sheep enterprise. The production and management decisions may range from:

  • A shift from producing 21 micron wool (on average) to, say, 19 micron wool, while holding fleece weight at current levels
  • Starting (or increasing) supplementary feeding in autumn to reduce the possibility of tender wool (ie, below 40 N/Ktex); or
  • Changing shearing date, lambing time or increasing stocking rate.

In all cases, assess price information over a number of consecutive years, use your personal knowledge of the wool market, seek advice from your brokers’, and/or brokers’ management services to interpret the variations in price and consider potential financial gains.

Super fine wool

Growing superfine Merino fleece wool

The most important attributes of superfine fleece wool (16.6-18.5 microns) that influence price received are (see tool 2.2, figure 1):

  • Fibre diameter
  • Staple strength
  • Staple length

In combination, these physical characteristics make up 68% of the variation in price paid for finer categories of raw Merino fleece wool. The fine, and particularly superfine, market segments also place a significant emphasis on clip preparation standards. Sheep producers can receive a premium for a well-prepared clip. Significant discounts are imposed in the fine and superfine market segments for any contamination or inconsistent quality, as this wool is generally bound for more sensitive end uses.

Growing mid-range Merino fleece wool

The most important attributes of midrange Merino fleece wool (20.6–22.5 micron) that influence price received are (see tool 2.2, figure 2):

  • Fibre diameter
  • Staple strength
  • Vegetable matter

In combination these physical characteristics make up 61% of the variation in price paid for mid-micron categories of raw merino fleece wool.

Australian Wool Production Forecast Report

The AWI Australian Wool Production Forecasting Committee publishes a forecast of Australian wool production four times a year to provide the best possible estimates of future sheep numbers for wool production (see signposts). The committee releases its forecasts of production as a press release with a report that provides detailed forecasts, historical data and commentary on the key drivers of the forecasts. This report is a useful planning tool for wool producers.

Develop your own clip database

Establish an information database or spreadsheet for your own wool clip to record annual production levels, quality and quantity of wool sold by category and price received for each wool type. Review this database/spreadsheet regularly to track progress towards your wool quality and production goals and embed it in your business plan.

Read

Wool Reports in rural newspapers such as The Land, Stock and Land, The Weekly Times, Stock Journal, The Countryman and The Queensland Country Life

The BWKElders weekly global market report brings the world market perspective: http://wool.elders.com.au/viewpdf.asp?PDF=media/reports/ Reports_66.pdf

The Mackinnon Project report on the best time for shearing: http://uninews.unimelb.edu.au/unarticleid_3740.html

View

Elders Wool Market Reports: daily physical market reports, the weekly analysis and regional averages plus monthly reports: http://wool.elders.com.au/marketreport.asp

Elders Portfolio Management: a specialist wool marketing service that gives you accurate advice on how and when to sell your wool: http://wool.elders.com.au/portfolio.asp

Landmark Wool Market Information: up-to-date reports, news and analysis of the wool market, plus the opportunity to register your details to receive market reports via email (click on the “Wool” tab on the left hand side of the web page): http://www.landmark.com.au/ AWI’s Market Intelligence Reports: collect and collate global wool market information. View web link: www.wool.com.au/Market_Information/Market_intelligence_reports/page__6739.aspx

Australian Wool Exchange Market

Information: services for a range of industry market reports based on daily, weekly, and monthly cycles. Web link: http://www.awex.com.au/scripts/nc.dll?AWEX.852486:LANDING:921565467:pc=L2

Australian Wool Production Forecast Report: detailed forecasts, historical data and commentary on the key drivers of future sheep numbers and wool production, published quarterly: www.wool.com.au/page__6738.aspx

Wool on the Web: technical information on the wool pipeline for wool processors: www.woolontheweb.com.au/LivePage.aspx?pageId=2

On Farm Fibre Measurement quality assurance brochure: questions and answers about OFFM which includes information about assuring the quality of your OFFM provider and a case study. Visit: http://www.wool.com.au/Publications/Genetics_and_wool_quality/page__2212.aspx

Note: To access the tools referred to in the text refer to the source website www.makingmorefromsheep.com.au