Merinos’ fight for acres

Despite the Australian Wool Exchange Eastern Market Indicator rising 18pc year-on-year, the Australian Merino flock continues to contract, down 60 per cent from the 1990s.

This drop in numbers is expected to be exacerbated this year with West Australian farmers offloading sheep because of drought conditions and the continued rise in prime lambs.

“We have a fight for acres in Australia – whether you decide to plant crops, run prime lamb sheep, Merinos or combination of above,” Mecardo market analyst Robert Herrmann said.

“In the last few years the wool producing Merino sheep are losing their fight for acres.”

This season, the market has reacted favourably to the 7 per cent contraction of supply with a 18pc price rise year-on-year.

However, Mr Herrmann said buyers were concerned about the level of production and supply security.

“I think low production in the long term is a danger for wool,” he said.

“If we can’t turnaround our production now, then the processors will adjust their capacity.

“It doesn’t mean we can’t focus on meat and wool but we do need to maintain wool as a flagship commodity, otherwise we become a bit player in the world market – insignificant and not taken seriously.”

The recent demand in the prime lamb industry has further dwindled numbers with an increased number of merino ewes being joined to terminal or maternal sires, ultimately resulting in fewer sheep retained for wool production.

“Elect to stop the decline in Merino matings and increase production because you can’t have an industry that is contracting in production and expect the market to keep rolling up,” Mr Herrmann said.

“If you were a processor, wool broker or exporters, you would be very concerned because all those businesses rely on volume.

“Wool exporters are confused - the wool price is higher year-on-year, yet the decline in production continues so exporters are wondering where their future business lies.”

New England Wool (NEW), who supply 40,000 bales of 18.5 micron and finer, quality wool annually to their shareholders Italian wool processors Successori Reda Spa and Vitale Barberis Canonico Spa, have been strong in the market recently, on a mission to secure supply.

“There is a limit to how big you can get when supply is your limiting factor,” NEW general manager Andrew Blanch said.

“We buy quite a bit of wool on contract now and it is purely because we need to sure up our supply for our shareholders - it is a way of locking in wool at a price and premium to encourage growers to produce it.”

NSW Department of Primary Industries technical specialist Phil Graham last month released research on relative sheep enterprise performances and said, contrary to popular belief, meat based enterprises were not always the most profitable.

“When enterprises profitability is compared on a valid basis there is no standout sheep enterprise,” Mr Graham said.

“The perception that wool is lagging behind is not correct - lamb enterprises have higher income but this comes at higher costs.”

Mr Graham said the relative performance of Merino verse crossbreds hadn’t changed for five to six years.

“Overall there is not much difference between the enterprises but the wool and meat enterprises achieve it by different ways; meat have high income and high expense but are more impacted by droughts.

“Wool has lower income and lower costs but are less impacted by droughts.”