High lamb prices a worry for wool

Following on from ANZ releasing its Shear Brilliance report into the state of the industry, and a recent tour of China and Singapore with industry stakeholders, ANZ agribusiness head Mark Bennett said there was plenty to be positive about, with some caveats.

He said in recent years much of the focus had been on sheepmeat and beef, with strong returns in wool almost a "surprise".

The ANZ report noted between 2009-10 and 2017-18, the mean annual Eastern Market Indicator price had increased by an average 10 per cent each year.

Mr Bennett said much of the reason for the lift in wool prices was due to reduced supply, but that was not the only cause.

He said increased demand from Asia, particularly China, was part of the lift in prices as more consumers demanded a natural, high quality product.

"The rising middle class in Asia story, as in food, is playing out in wool," he said.

This did come with a warning as wool - and sheepmeat - was dependent on China as its largest market by volume and value, he said.

"If, as an agriculture industry, we want to grow from $60 billion value to $100b, China has to hold true," he said.

Falling flock numbers between 2012-2017 meant Australia had gone from providing the world's largest wool clip, to being on par with China itself, which produces about 417 million kilograms, according to the ANZ report. But Australia was still the biggest provider of fine wool.

"The global sheep flock is growing but it's producing less wool," he said. "As people transition towards meat, it keeps Australia well-placed to produce fine wools."

Mr Bennett said while wool had followed a familiar path in Asia, in many other ways it was unique.

"Usually price attracts production, which kills price but that is harder to see in sheep," he said. "There is no world flock response likely.

"We've got Australia and New Zealand dominating the fine wool market but we've also got Australia dwarfing NZ in numbers."

He said within Australia there had been a mini-resurgence of flock numbers about 18 months ago before the widespread drought really had an impact, limiting carrying capacity.

"Things look very stable for the price outlook," he said.

"We would anticipate 1-1.2pc flock growth each year, which is not the kind that would impact on price."

Mr Bennett said the other interesting story in the wool market was its competition against synthetics.

He said despite growing price differences between wool and synthetics, there had been little dent in the demand for wool.

"There is consumer appetite for a natural, stature product," he said.

Mr Bennett said this boom time required caution.

"When things are good, it's easier to make mistakes - when things are tighter, we have a closer focus on margins," he said.

Quality Wool managing director Mark Dyson, who had just returned from a trip to China, said the recent period in wool had been the best, in terms of profitability and volume, since the late 1980s, with demand still strong.

He said a recent price drop was driven by politics and the United States-Chinese trade war, rather than decreased demand.

But he is concerned about ongoing supply, due to a combination of drought and rising lamb prices.

"The drought impact is greater than anyone would have thought 12 months ago, then, on top of that, we have red meat returns," he said.

"It wouldn't surprise me to see some states down another 25pc in flock numbers in the next 12 months.

"The concern is cannibalism of the wool industry since the sheepmeat industry is so strong - we're killing the breeding flock."

WITH prices high for sheepmeat and wool, sheep producers say this is the right time to put more investment into research.

AJ&PA McBride chief financial officer Nathan Wessling, who joined the recent ANZ trip to China and Singapore, believes there is opportunity to capitalise on the sector's boom.

"Lamb and mutton is a niche part of the red meat industry and, globally, wool is a niche fibre so we're losing out on research dollars," he said. "In an era of good returns, should we be encouraging a shift of levy funds from marketing to research?"

He said Australia's marketing had clearly had a good impact, particularly internationally where Australian produce had a good reputation. But he said research was too important to be left behind.

He also questioned if there was too much duplication and wasted money across multiple grower bodies, such as Meat & Livestock Australia and Australian Wool Innovation.

Andrew Michael, Leahcim, Snowtown, who was also on the overseas trip, said as well as research, there needed to be focus on extension and adoption.

"Our markets throughout world for meat and wool are massive but research is so important," he said.

Mr Michael, a MLA director, said the trip showed Australia's reputation was "still brilliant", with the investment in traceability resulting in a "valued product".

"There is absolutely no doubt China wants a providore story, and its thirst is huge for our wool and meat," he said. "In Singapore, the cheapest Australian meat I saw in a butcher was sausages for $8.50 for every 100 grams, and they were walking out the door."