Farm Tender

Mecardo Analysis - Carcass values continue to constrain flock

By Andrew Woods | Source: ABS, AWEX, AWPFC, ICS.

An astute observer of the wool industry pointed recently to a simple mechanism where meat and wool prices tussle for sheep, in this case, wethers. This is especially of interest in dry times when stock numbers are under severe pressure. This article takes a quick look at this mechanism.

After environmental constraints, prices play the governing role in determining enterprise mix on farms in Australia. Given the similar change seen to sheep numbers in the major wool exporting countries in recent decades, this statement seems to also apply to sheep regions beyond Australian shores.

The exact mechanism by which prices influence enterprise mix is more complex than the motherhood statement made in the preceding paragraph. In effect, there probably are a number of mechanisms. One that has been pointed out is the simple comparison of the carcass value of a wether to its annual woolclip value.

Figure 1 shows the average carcass value of sheep sold to abattoirs since the early 1980s (using the average carcass weight and a NSW saleyard mutton price series) and the average wool clip value (using an estimated greasy fleece weight 2 kg above the national average greasy cut per head and the average merino micron price). There are enough assumptions in these two series to cause some debate, however, the picture shown by Figure 1 helps explain why the sheep flock has struggled to increase despite very good wool prices in recent years.

From the early 1980s through to 2000, the annual wool value easily outperformed the carcass value. Then for the next decade, the wool and meat values were similar. From around 2010, the meat value has tended to outperform the wool value, in a reversal of the situation in the two decades to 2000.

Figure 2 simply shows the difference between the two series shown in Figure 1 in dollars per head. In the wool value series, the greasy wool cut per head is assumed to be around 6.5 kg. For some this will be low and for others high. Whatever greasy wool cut is used, Figure 2 shows a major change in the relative wool to meat value for Merino sheep during the past thirty years. Such a change in relative value will lead to a change in decisions farmers make about retaining stock.
2018-11-20 Wool 1 2018-11-20 Wool 2 
Key points
   * During the past thirty years, the relative value of meat to wool for merino sheep has changed significantly.
   * This change in relative value makes the relative wool production from Merinos less valuable in relation to their meat value.
   * This point which leads to greater volatility in sheep numbers is not well understood by the wool supply chain.

What does this mean?
The article will appear to be stating the obvious to many farmers, but it is a point not particularly well understood in the wool supply chain. Downstream operators think the current and recent high wool price will lead to increased wool production. Drought mixed with a high meat to wool value ratio means less sheep than historically we would have expected to be carried through.