Wether incomes still can’t compete

Merino lambs

As we move towards recess for wool markets, and what should be near the peak of the lamb market for the year, it’s time for another look at relative prices. Has the rally in wool markets been enough to see more Merino joinings next year or save some wethers from the market?

The last fortnight has seen wool prices ease off highs, but they are still much better than this time last year.  We should clarify a little, fine wool prices are much stronger, with the 19 MPG up 36% while the 21 MPG is 8% higher.  For the sake of this analysis, we’ll use 19 MPG prices, as there are more 19 micron Merinos than any other.

Since the Covid inspired wool price crash we have shown figure 1 a few times.  It shows the 19MPG wool prices, the Eastern States Trade Lamb Indicator (ESTLI) and the wool premium to lamb.  The wool premium to lamb is a very rough proxy for the relative profitabilities of wool and lamb enterprises. 

The higher the wool price relative to lamb, the more profitable a wool enterprise will be compared to a pure lamb production business.

The 19 MPG fell to just a 44% premium to the ESTLI in October 2020, having fallen from highs just above 250% in March 2019.  Since the low last October, the rising wool price and relatively steady lamb price, has seen the 19 MPG premium move back above 100%, getting to 120% but falling back to 103% last week.

Figure 1 shows that despite the solid improvement in wool prices and the wool premium to lamb, it remains at the bottom of the historical range.

To see how the relative prices affect enterprise income we need to make some assumptions.  For wethers we are assuming they are 1 dry sheep equivalent (DSE), and they cut 3.6kgs clean 19 micron wool.  Merino ewes are 1.5 DSE, cut 3.25 kgs of wool, and produce 0.7 lambs at 12.6kgs cwt.  Composite ewes are 2 DSE, produce 2.65 kgs of 32 micron wool, and 1.25 lambs weaned at 15.4 kgs cwt.

Figure 2 shows the change in income per DSE over time for the three enterprises, and wethers are still lagging well behind.

What does it mean?

Wether annual income per DSE has improved markedly with the rise in wool prices, but with lamb prices remaining very strong, wethers income can’t get near ewe income.  Obviously costs for wethers are a lot lower, and from 2017 to 2020, they were a very good enterprise. 

At current income levels, it’s hard to see too many Merino wethers making it past the lamb stage.  Finer wool is at a better premium, and sub 18 micron wethers might have a chance.  In general, wool prices might need to improve further to encourage the expansion of wool enterprises where meat sheep are an option.

Have any questions or comments?

We love to hear from you!

Print This Post

Key Points

  • Wool prices have improved but remain at a lower than normal premium to lamb values.
  • Wether incomes have risen markedly, but lamb and Merino ewe incomes are well in front.
  • There is likely going to have to be further increases in wool prices for strong Merino flock expansion.

Click to expand

Click to expand

Data sources: MLA, Mecardo

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services

Have any questions or comments?

We love to hear from you!

Wool warms to Winter

Last week’s positive move continued with the market posting gains across all MPG’s, with the exception of 16.5 MPG in Melbourne which eased slightly. This

Read More »

Bale breakdown for May

Wool supply is one of the key components of the greasy wool market, and the greater supply chain, which we can monitor closely as the

Read More »

Want market insights delivered straight to your inbox?

Sign up to the mailing list to get regular updates to new analysis and market outlooks

Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published

Commodity conversations podcast cover image, a illustration of a sheep standing on a cow's back with grain either side
Listen to the podcast

Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.

Photo of a farmer surrounded by Merino sheep in dusty yards
Research: Analysis of the Australian sheep flock

In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making. 

Image of harvested grain pouring into a chaser bin

We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.