Sunday, 4 December 2011

Wool Sale - 1 December 2011

On Thursday of this week we travelled to Sydney with our wool broker, Rowan Woods of Jemalong Wool, to see our recent clip sold. Another grower, Paul who has a property not far from Orange, joined in the trip as well. It was a most enjoyable day, although a tad more adventurous at the start with us finding ourselves traversing 5 flooded causeways up to 0.8 metre deep and running into a kangaroo on the way to Forbes.

The sale process for us actually begins during shearing. Rowan has an excellent understanding of the wool market and comes out to our place at the start of the shearing. He works closely with the wool classer and other team members to give guidance on how best to prepare and sort each fleece in order to maximise eventual sale price. Market preferences do change from time to time. The wool classer we had this year was totally open to this type of input and on at least one occasion subsequent rang Rowan to check on a couple of aspects.

On receipt of our consignment of wool the team at Jemalong Wool arranges for each line of wool to be objectively and independently sampled by representatives of Australian Wool Testing Authority Limited (AWTA). The most critical measures are listed below, together with some commentary on our ability to influence the results on farm:

Micron (Mic)– Average diameter of the fibres in the sample measured in micrometres (microns). Driven primarily by genetics, but impacted by the age of the sheep (finer in younger sheep) and nutrition. Our sheep always have plenty of grass to eat but our soils are light, we don’t ‘improve’ them through adding fertilisers and the species are primarily low to mid range nutrition natives. The micron of our main line of older ewes has stayed constant or in fact declined since we bought them. Our wool is on the finer end of the scale at 17 to 20 microns. As a general rule the finer the micron the higher the price per kg clean.

Length (MM) – Average length of the wool in millimetres. Genetics does have a role to play in that generally the finer the wool the slower the rate of growth. Leaving aside the impact of individual animal variation and nutrition this measure is one we can control to a high degree through altering the time between shearings. It is a balancing act though as we also need to take into account animal welfare. It’s important to us that we try and shear not long before the spring grass growth runs to seed as the seeds then have less of an impact on both the animals and through seed ending up in the wool sample (more on this later). In an ideal world and looking solely at this measure the goal is to shear as infrequently as possible at the point when there is no risk of the market penalising the price per kg due to it being over or under preferred length. According to Australian Wool Innovation research the ‘ideal’ merino wool length is 85-90 mm. The finer the wool the more susceptible it is to price discounts for any faults, including length.

Staple strength (S/S Nkt) - A measure of how much force is required to break a wool staple. Recorded as Newtons per kilotex (Nkt), this refers to the force/pull (Newtons) required to break a staple of given thickness (kilotex). Management has a significant impact on staple strength through ensuring adequate animal nutrition and minimising stress through the growing. Results above 40 Nkt are ideal. Significant price discounts kick in when the staple strength falls below 30 Nkt.

Position of Break (POB) - is measured in conjunction with staple strength and is a measure of the position in the staple (base, mid or tip) where it will break given enough force. Every staple has a point somewhere (just like a chain has a ‘weakest link’) where it will break. The POB is useful in processing since it provides the processor with an indication of where fibres are likely to break, and thus the length of the broken fibre sections. To quote from the AWTA website: “Strength and midbreak percentage are the two most important factors in determining the combing performance of wool. Many mills will specify a strength minimum along with a maximum midbreak percentage for their deliveries, thereby placing increased price pressure on low midbreak types and magnified decreases in wools displaying a high midbreak percentage.” We shear once a year and so far have had excellent ‘position of break’ results. Our POB has tended to not to be in the middle of the staple but we are happy to concede this may be due more to good luck than good management. Our theory is that the staple is likely to be weakest at the point in time when the animal experienced the most stress or change during the year. This could be dietary (moving from high to low nutrition or vice versa), environmental (cold or heat shocks), parasite / sickness burden (flies or worms to name two examples) or at different times in the breeding cycle (such as lambing). We move or sheep regularly, there is not a big variation in feed quality between paddocks, we don’t substitution feed (e.g. feeding hay or grain) and the animals always have access to mineral supplements. We rarely have issues with flies and cull those that do get blown and due to the regular moving to fresh pastures which have had long rest periods we’ve found that worm burdens are not high. Sheep are more susceptible to heat and cold shocks when the wool staple is short and to heat stress when carrying full wool, especially when they are grazed in conditions where there is no or limited shelter. Most of our paddocks have good stands of paddock trees and the topography allows for animals to find spots with less wind. Our lambing occurs not long before shearing. Given these factors it might well be that we can take credit for our good POB results!

Vegetable Matter (VM) - the percentage of VM found in the greasy wool core-sample. To quote from the Australian Wool Innovation website: “The presence of VM in wool is considered a disadvantage as its removal during processing can be costly. Depending on the severity and type of Vegetable Matter, the wool may need to undergo additional processing called Carbonising. Carbonising is a relatively complicated and expensive process which adds to the cost of the final product. It involves passing the wool through sulphuric acid bowls and ovens, before rollers crush the brittle VM that remains. As well as being slower, carbonising usually involves higher fibre loss than other processing methods”. The main types of VM we have on Ochre Arch are Bathurst Burr (not really a problem), Barley Grass (due to our sheep style we’ve not found this to be especially problematic) and Corkscrew Grass (this is a serious issue for our sheep). Barley Grass and Corkscrew Grass fall within the definition of ‘shive’. Again to quote from the AWI website: “In combing wool, fibrous types of VM (shive) are the most difficult to remove for processors as they align themselves with the fibre during combing and can pass through to the final fabric. Consequently these types of VM carry the largest discounts.” Historical records show that discounts for shive kick in when the amount exceeds 1.5%. We have not experienced this level yet but were not far from it this year. The main recommended strategies to reduce the impact of VM include grazing management (grazing planning, herbicide application and slashing), timing shearing to be immediately prior to the worst time of year for the most problematic species, and placing coats on the sheep that reduce the impact of the seeds. Last year we had one heck of a learning experience with the Corkscrew grass which manifested in the loss of some lambs. This year our strategies include shearing timing and grazing planning. With grazing we kept animals in the paddocks that have the most Corkscrew grass up until seeding started and have subsequently had them in paddocks with much fewer Corkscrew plants per hectare. We’ve about 1 month to go before we will be through the peak of the Corkscrew grass season. If we find that our grazing strategy does not prevent significant lamb losses we may need to look at altering our enterprise mix.

Yield: A measure in percentage terms of the amount of actual wool in the greasy wool sample. The non-wool components of greasy wool include vegetable matter, lanolin (wool grease) and other contaminants such as dust. Management can have a significant impact on yield through actions such as maximising grass ground cover thus reducing bare ground / dust. We are big on doing this here on Ochre Arch. The higher the yield the higher the amount paid per kg greasy.

Other Measures: There are also some subjective measures that can have a material impact on the sale price. Possibly the highest impacting of these is the presence of Dark and Medullated (hollow) Fibres (DMF) in the wool sample. Off the back of this Australia now has a Dark and Medullated Fibre Risk Scheme which is basically an assurance declaration that is coded and included in the wool description summary for buyers to review. Its purpose is to try and preserve Australia’s reputation as the premier white fine wool producing country in the world. Some of the main factors within the measure that have the biggest impact on wool price are:
  • Merinos being mated, reared and/or run with ‘exotic’ sheep breeds such as Awassi, Damara, Dorper and Karakul
  • Sheep aged 8 years or older
  • Not crutched at all or crutched longer than 3 months before shearing
The AWTA, as mentioned previously, takes samples from each line of wool from each grower. Some is used for detailed analysis and the rest is placed in sample bags and sent to the wool centre that codes and displays it in sequentially numbered wool lots. The original bales of wool are held at the broker’s locale and remain there until sold.

The following photograph is a macro view of the huge wool centre shed at Yennora in Sydney.
The following photo shows our own wool ‘closer up’ in the sample bins.
Buyers are given a printout of the analysis as well as access to all of the wool samples prior to auction.

In the case of the Yennora wool centre there are two separate auction rooms, each with viewing access for growers and other interested parties. Room 1 is dedicated solely to the sale of merino fleeces. Room 2 is for ‘all other’ wool types such as merino pieces and crossbred wools.

At the sale we attended wool was being sold by 9 separate businesses representing growers. Each theoretically provides an auctioneer to sell their lots but in practice some work together. The order of each of the broker’s lots varies sale by sale.

In each of the auction rooms are the following people:
  • Auctioneer – progressively works through each of the lots on offer. Approximately 300 lots are sold per hour meaning that on average 12 seconds are spent on each lot.
  • Australian Wool Exchange sale recorder – person who writes the price and fate of each lot on a running sheet
  • Australian Wool Exchange display board recorder – person who enters each sale result into a database visible to the buyers and visitors
  • Buyers

Each auctioneer takes with her or him a list of the lots they will be auctioning together with details of any reserve prices  agreed with growers and a possible bidding start price which helps get things going. Each lot as it is dealt with by the auctioneer is displayed on an electronic board. The details shown are: Lot number, Broker, Price, Buyer and in the event that the reserve price for a particular lot is not reached the letters ‘PI’ (passed in) are posted on the board. There is a convention in place that allows buyers to place a lot they have purchased back up for auction provided this is done before 9 subsequent lots have been auctioned. This allows them to correct errors they may make.

We estimate that there were 12-15 buyers in each of the auction rooms. The reality though is that the majority of wool is purchased by 3 major companies. We were surprised to learn that one of these is in fact a cotton producing company. Obviously they use there skills to acquire and process both wool and cotton – both natural fibres.

The results of the auction of each line are verified by AWE staff and made available shortly thereafter to the brokers in electronic format.

Jemalong Wool is big on providing its growers with timely and accurate information. Wool sampling results, including nett weight per line, are accessible via user ID and password based login on their website. They also provide a succinctly formatted summary before the auction which includes an estimate of sale price per kg and total gross proceeds.
Immediately after the auction the staff back at Forbes receive from AWE the electronic sale results file which is then fed into the computer system. Generally each grower can access sale results within 2 hours of the auction completion and it is normal practice for Rowan and his team to also call each grower within the day to advise results.

At the same time as grower advices are prepared Jemalong Wool also issues invoices for payment to the successful buyers of each lot. The buyers have 2 weeks to pay Jemalong Wool and Jemalong Wool pays the growers at the same time. This then means that Jemalong Wool is not exposed to credit risk. A question we did not ask but in hindsight should have was “What happens if the buyers do not pay”?

In the overall scheme of things our wool was in good order with no major faults. Our overall returns were higher than for the previous year due to higher volume and comparatively higher prices per kg for the non-top line. The price per kg for our top line was in fact less than in 2010. The market was ‘softer’ than the pre-sale estimates supplied by Jemalong Wool but not materially so. We agreed with Rowan not to set reserve prices for our wool for a variety of reasons.
The main advantages of actually attending the auction are that we get to see the results of auctions of many more wool lines and can learn from this, and we get to spend quality time with our host and his other guests and contacts. In Paul’s case he produces substantially more volume at finer micron than our own. It was most curious indeed that the buyers on the day simply were not aggressively looking for wool at the finer end of the market. Consequently the auction prices for Paul’s wool were only marginally higher than our own, and his two main fleece lines did not reach the reserve. The major learning for us was that the market is ‘moody’ when it comes to fine wools. Paul is likely to re-offer his two fleece lines for sale early in 2012. Jemalong Wool is happy to keep the wool not sold in the warehouse. They do, though, charge holding fees after a reasonable period.