Wool price decline not good timing for merinos

Carmen-Lee Campbell - NSW - SHEEP

It has been over a year since the wool versus lamb chart was updated, and a crash in wool prices always prompts a review. Here we look at how wool prices are performing relative to lamb, and how this might alter flock decisions.

The difference between merino wool and lamb prices is able to move joining decisions considerably.  In the past strong wool prices has seen more merino ewes joined back to merino rams.  In more recent times, weaker wool values, relative to lamb prices, has seen more merinos joined for a first cross or terminal lambs.

Figure 1 shows that it was only back in July and August when the 19 micron price guide (MPG) was at its strongest premium to the Eastern States Trade Lamb Indicator (ESTLI) since before the Covid wool price collapse.

When lamb prices fell in July, while wool held strong, the 19MPG moved back to 150% premium to the ESTLI.  This was a significant rise from the average of 70% which prevailed for much of 2020.

The consistent weak merino wool prices, relative to trade lamb values has skewed the flock recovery to sheep other than merinos.  A few weeks ago we looked at growth in the breeding ewes flock, and while merino breeding ewe numbers remain stagnant, ‘other’ breeding ewe numbers are growing strongly.

Figure 2 shows a very simple model of income per dry sheep equivalent (DSE) for merino ewes, composite ewes and merino wethers.  For wethers income come from 5kgs greasy wool cut at 1 DSE.  Merino ewes produce 0.9 merino lambs at 28kgs lwt, and 4.5kgs of 19 micron wool.  Composite ewes produce 1.25 lambs at 40kgs lwt, and 4kgs of 30 micron wool.

Obviously there will be flocks performing much better than these figures, and most will have a rough idea of their numbers.  Based on these figures, composite ewes have been providing more income for much of the last 3 years. This fits with flock trends.

Merino wethers remain well behind ewes in terms of income per DSE.  There is less work in wethers, but their share of the flock continues to shrink as lamb prices close the gap on wool.

What does it mean?

Many sheep producers will be starting to think about joining ewes over the next four months.  For merinos now is an unfortunate time for wool prices to tank.  Lamb prices have also been lower, but with the 19 MPG moving below a 100% premium to the ESTLI, we are unlikely to see any expansion in merino flocks over the coming year.

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Key Points

  • In July 19 micron wool was at its strongest premium to lamb for two years.
  • Recent falls in the wool market has pushed premiums back under 100%.
  • Weaker wool prices will limit expansion of merino flocks over the coming year.

Click on figure to expand

Click on figure to expand

Data sources: MLA, Mecardo

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