Wool in the Cross Hairs

Graham Peart

Sheep & WoolStill a Major Rural Industry

• Farmers– 35,902 farms run sheep

• Income 2003/04 (export)– Wool = $2.8B– Meat, live & skins = $1.3B

– Cattle = $4.1B– Wheat = $3.4B

} = $4.1B

vs

vs

Recent Trends - Wool

• Sheep numbers down 49% since end of floor price (1991)

• Wool production down 37% since end of floor price (1991)

• Wool Micron down 0.9µm and fine wool 10% to 30% of clip

• Merino Ram Sales down 41%, Queensland down 60%

• Micron Premiums down from 25% to 6% (2000 to 2005)

• Wool Prices down approx 40% (2002 to 2005)

Real Wool Prices & Sheep NumbersNational Average Auction Prices – Greasy - ABARE

0

1000

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39/40 44/45 49/50 54/55 59/60 64/65 69/70 74/75 79/80 84/85 89/90 94/95 99/00 04/05

Year

Rea

l Woo

l pric

e (c

/kg

grea

sy)

0

25

50

75

100

125

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She

ep N

umbe

rs (

Milli

ons)

($04/05)

Sheep NosRight axis

Wool pricesLeft axis

Australian Shorn Wool Production

0

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400

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1985

/86

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(f)

Sh

orn

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ol p

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Australian Wool Sold at AuctionVolume by Micron – AWEX Data 2006

Micron Premiums1995 to 2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

1995

/96

1996

/97

1997

/98

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2003

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/05

Mic

ron

pre

miu

m (

%)

19 μm

20 μm

21 μm

22 μm

23 μm

Stud Merino Rams sold by StateAustralian Association of Stud Merino Breeders

AWEX Wool Price Indicators (1994 to 2006)Northern Indicators for 19, 21 & 23 micron (cents / kg clean)

as at 24 February 2006

Recent Trends - Meat

• World Sheep Meat Production up 13% (1991 to 2003)

• Australian Lamb Exports up 287% (1984 to 2005)

• % of Lamb Exported up from 13% to 44% (1984 to 2005)

• Lamb Prices up 56% (1985 to 2005)

• Mutton Prices up 270% (1985 to 2005)

Joining Intentions

Merino rams Short wool rams

Long wool and other breeds of

rams All rams

million % million % million % million

Merino ewes joined 1996-97 40.7 (2) 80.8% 5.9 (15) 11.7% 3.8 (10) 7.5% 50.4 (2)

2004-05 31.8 (6) 73.6% 8.1 (16) 18.8% 3.3 (20) 7.6% 43.2 (5)

First cross ewes joined 1996-97 0.2 (41) 6.7% 2.6 (33) 86.7% 0.2 (6) 6.7% 3.0 (2)

2004-05 0.4 (43) 7.0% 5.1 (18) 89.5% 0.2 (69) 3.5% 5.7 (14)

Other ewes joined 1996-97 0.1 (41) 6.7% 0.6 (33) 40.0% 0.8 (6) 53.3% 1.5 (2)

2004-05 0.0 - 0.0% 1.2 (40) 63.2% 0.7 (84) 36.8% 1.9 (28)

All ewes joined 1996-97 41.0 74.7% 9.1 16.6% 4.8 8.7% 54.9

2004-05 32.2 63.4% 14.4 28.3% 4.2 8.3% 50.8

Note: Figures in parentheses are standard errors, expressed as a percentage of the estimate provided.

Joining Intentions (1996 to 2005)

• Ewes joined dropped 7.5%

• Merino Ewes joined dropped 14.3%

• Ewes joined to Merino Rams dropped 22%

• National Flock Merino Ewes 85%

– Joined to Merino Rams – 74%

– Joined to Dorest Rams – 11.7%

– Joined to Suffolk Rams – 5.7%

– Joined to Border Rams – 3.6%

– 22 other Breed Rams – 4.9%

New Breeds

• SAMMs, Dohne, Dorper, Dammara

• Characteristics

• New breed hype

• WA study (2005) Farm Profit

– Peppin Merino = 100%

– SAMM = 97.6%

– Dohne = 96.1%

• Economic and climate - niche

Profitability of Sheep Enterprises

• Merino Wethers: less profitable than ewes

• Micron v Profit: 19µm more profitable than 21 or 23µm

• Most profitable: high performance 21µm ewes with wethers for meat or Merino ewes 21µm 100% to meat rams

• Wool-less sheep: 25% below best Merino returns

NIL

28um21um21um

21um

23um

21um

21um

21um

19um

23um

21um

19um

$0

$5

$10

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$20

$25

$30

Mox

Mo

Mox

Mo

Mox

MoMeat

Mox

MoHP

Mox

Mo

Mox

BL

Mox

25%Meat

Mox

Meat

Ixx

Meat

Dor-per

GM

per

DS

E

Merino Wethers

DPI Sheep Gross Margins2006 Budgets

Sheep v Beef Gross Margins / ha1969 to 1998 GRAS Data – Wheat / Sheep Zone

0

20

40

60

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69-70 71-72 73-74 75-76 77-78 79-80 81-82 83-84 85-86 87-88 89-90 91-92 93-94 95-96 97-98

Gro

ss M

argi

n ($

/ha)

Merino Sheep Beef Breeding

Long term Merino GM = $23/ha

Long term Beef GM = $17/ha

Enterprise Substitution

• Within sheep: move to more meat while retaining wool

• Sheep to Cattle: 10yr trend, likely to end. Sheep returns similar / better.

• Sheep to Crop: 10yr trend, likely to end. Machinery and chemicals pushing a return to sheep.

• A 20% increase in GM$/ha needed for farmers to move

Productivity growth

Industry Productivity Growth %

Terms of Trade %

Loss / Gain

Sheep Producers 1.6 -1.3 +0.3

Prime Lamb 5 to 20% of receipts

2.1 -1.3 +0.8

Specialist Sheep producers

2.2 -1.3 +0.9

+0.6-1.11.7Dairy Farms

+0.7-2.63.3Crop Specialists

+0.4-1.41.8Beef Specialists

0-2.52.5Sheep – Crops

-0.6-1.61.0Sheep – Beef

-1.2-2.10.9Sheep Specialists

Loss / GainTerms of Trade %

Productivity Growth %

Industry

+0.6-1.11.7Dairy Farms

+0.7-2.63.3Crop Specialists

+0.4-1.41.8Beef Specialists

0-2.52.5Sheep – Crops

-0.6-1.61.0Sheep – Beef

-1.2-2.10.9Sheep Specialists

Loss / GainTerms of Trade %

Productivity Growth %

Industry

1977 to 2002

1988 to 2002

ABARE 2005

ABARE 2005

Productivity Gains

• 25 year figures:– Sheep Negative

– Beef Fair

– Crop & Dairy Good

• 14 year figures– Sheep Fair

– Sheep specialists Good

Options for the future• Superfine wool sheep

– Good technology to drive genetic progress

– Specialist Enterprise – 16 to 17µm

– Expansion in high rainfall tablelands

• Medium wool dual purpose– Good index selection to drive multi-progress

– 19µm high fertility, heavy cutting sheep

– Pastoral zone with meat finishers

• Meat only sheep– Potential to save mustering and shearing costs

– Yet to prove potential

– Niche in Pastoral zone

Seed Stock Production

• Studs mostly small

• 1850’s English system to enforce breed standards

• SGA to drive modern genetics in all breeds

• Meat – move to composite rams

• Wool – move to specialist streams bought on EBV’s

Research Needs

• Motor bikes, poly pipe and B doubles – major breakthroughs.

• Wool for Wealth – AWI. First major attempt to measure integrated benefits.

• Little research focus on generating new within enterprise profits.

• Profit focused integrated research teams needed to lift fee paying farmer’s returns.

The Future

• New counter cyclical investors into sheep and wool.

• Merinos to split into two major streams.

• SGA to play a major role in efficient index selection.

• Seed stock industry ripe for new innovative investors.

• Meat to move towards composite rams.

• Industry poised to lift productivity and profits.