The Impact of COVID-19 on the Wool Market
The adage "The trend is your friend" rings true. In my 42 years in the sheep and wool industry, I've witnessed the significant impact of trends, which have been consistently present, remarkably diverse, and immensely influential.
The trend that has been most noticeable has been the effect of COVID-19 on demand in China which has seen the Chinese Wool Pipeline industry grow their market share of Australian Wool from 74% to 88% in the 2020-21 year.
The Ongoing Debate Over Mulesing
Undoubtedly the trend that has attracted the most airtime over the past 15 years has been that of the Northern Hemisphere consumers and retail brands and their opposition to the mulesing process. 15 years on from the PETA protestors splashing blood on the retailers front door entrances, the message that Australian farmers welfare practices are substandard is still lingering. As we know here in Australia this perception of Australian sheep farmers could not be further from the truth, and in fact the Wool Producers Australia & Sheep Producers Australia have released two important initiatives to help turn this misconception around.
Industry Initiatives to Improve Perception
The first is the Trust In Australian Wool Campaign and the second initiative is the Sheep Sustainability Framework. Both programs are aimed at raising the profile of the animal welfare, management and sustainability practices undertaken by the Australian Sheep and Wool Producers.
A story that should have been told by our levy gobbling, industry bodies decades ago.
Adoption Rates and Market Response
The steadily increasing in the adoption rate of Non Mulesing (NM) has been in direct response to market signals. In 2021, ~15% of the National auction offering was declared NM, however in season 2020-21 the average reported premium at auction for 16-21µ was just 20-33c above the average reported price.
With limited purchasing from European interests in the past 18 months, this premium is well down from the previous 5 years, nevertheless, a noticeable trend. Furthermore the 4% of properties are declaring Ceased Mulesed (CM). This past year CM did not report any significant premium above the average auction price. In addition exporters are subject to increasing pressure from their downstream processing customers to source more NM and CM Australian Wool. However the financial benefit does not go any way to match the additional cost trade off that comes with a transition to a NM flock. Nor the long term increase in human resources and some potential animal welfare impacts of the changing flock dynamics.
The Rise of Integrity Schemes: Caution When Considering Integrity Schemes
Enter the integrity schemes. Some schemes take large chunks of your money with the promise of delivering huge premiums. This is where I offer a sincere caution.
In my observation each wool producer’s situation should be considered carefully and vetted closely before jumping into the integrity scheme arena. This particular topic is something Moses & Son have devoted a huge amount of time to ensure we are acting in our clients best interest.
Whilst we offer group RWS, Authentico and Sustainawool (Gold Green and Blue) Integrity Schemes, if called upon Moses & Son will match you with the best fit to deliver positive financial benefits, but only if the benefits exist.
Fibre Diameter Premiums: A Profitable Trend
On the flip side, there is an incredible price basis premium for fibre diameter that has seen a 1,289c premium for 17 MPG over 21 MPG (on the 28th June 2021). That is- the 17 MPG was 2,578c and the 21 MPG was 1,289c on the 28th June. This was driven by increased demand for fine fibres for the knitwear sector. Predominantly to meet the online sales in lightweight next to skin athleisure garments in China and reduced supply caused by the favourable seasonal conditions across the wool growing regions of Australia.
Focusing on Controllable Factors and Prioritising Measurable Profit Drivers
When approached by wool producers who are looking to identify tangible profit drivers, then I would be looking to the management decisions within your control, like fibre diameter, wool cut, growth and fertility and less on the things out of our control like market perceptions which are continually evolving and rapidly changing. These tangible measurable selection and management tools are readily available with supporting data for sheep and wool producers and, quite frankly, are currently out performing NM & CM premiums by light years.
In summation, my preference is to lean towards the things we can control, rather than adopt the things out of our control. So I encourage you to consider making choices that you can measure and control that deliver profit in your bank account, not just designed to line the pocket of others!
If you would like tailored and support for your farming enterprise, get in touch with our on-farm consultants.
