Drought in Australia

Impacts of drought in Australia for the wool industry

At the Schneider Group, we believe that a close connection and regular exchange of ideas with wool producers is of mutual benefit to both sides of the wool business. In March 2019, a team of staff members from Europe and Australia traveled throughout Australia and New Zealand to meet with wool growers. As usual, we have learned a lot during this trip and wish to share some of the insights we have gained. In this blog post, we will talk about the dreadful drought castigating many Australian farms.

A severe drought in Australia for several seasons

Australia has been in the grip of a severe drought following the 2016/17 summer of record high temperatures and a record dry winter of 2017. The high temperatures and low rainfalls have led to severe drought across the eastern part of Australia, the exception being Tasmania.

Consequences on farm

As a consequence, wool growers had to adapt to the situation with several strategies in order to maintain a healthy flock and to continue operating their business. Many had a supply of supplementary feed ‘on hand’ as security for such events but the severity and longevity of this drought has proven very problematic. The financial strain of a long term supplementary feeding program has been crippling on many sheep and wool producers. The unfortunate consequence for the majority of growers was to reduce sheep numbers in their flock in order to care for their land assets and to maximize the health and productivity of their remaining flock.

We met with wool growers who have reduced sheep numbers by as much as 30% (total annual production in the state of NSW is down 20% year on year). Having to reduce sheep numbers has, of course, a long term effect on wool production and future income but still is a necessary step to take for the wellbeing of the animals.

The other step many growers had to undertake was feeding sheep with hay and grain, wherever paddocks were running too dry for grass and shrubs to grow. When we visited growers during our trip, we learned that many growers have been feeding their sheep for over 18 months. This necessity has of course also a huge financial impact for the grower’s business as prices for hay and grain have more than doubled. One grower explained that feeding one sheep for one week costs him around 3 AUS$, a cost that accumulates quickly over a long period of time as the drought continues. Water resources were also reportedly of concern but some welcome rain in recent weeks should help in this situation.

Consequences for wool

The drought not only has a huge impact on growers and their sheep but also affects the wool grown. The reduced nutrition for the sheep reduces the quality of the fibre they produce. The severe weather conditions impact the tenderness of the wool, making it more prone to break. Staple strength is an important qualitative characteristic of wool during the combing, spinning and weaving process. Meeting with wool growers across the country, gave us the opportunity to jointly discuss this challenge. One way to work with the increased tenderness is to start the shearing season earlier and therefore decrease the length of the fibre. This helps in managing the reduced staple strength during processing. Some growers also contemplated this to take advantage of the wool market to help finance the cost of feeding sheep. Others are shearing early before offloading excess stock as they head to another tough winter.

With very dry surfaces for the sheep to graze on, the wool also accumulates more dust within the fleece. For top makers, this is another challenge to manage during the scouring process. Processing costs relating to more regular cleaning of the water and the scour bowls add to the processing expense. As such topmakers generally have higher processing charges for lower yielding wools. The process of scouring is very important and the cleanliness of the wool tops for the spinner is also a major requirement.

Consequences for wool industry

With reduced sheep numbers, wool production has already decreased and is forecast to go down even further. For some micron ranges (20.0 / 23.0) the available kg of wool is down by 25% to 40% while there has been an increase in drought-affected fine wool to the end of April 2019. This has impacted on the market with finer micron prices falling while the medium and broader microns have been less affected. For more information on wool prices, see our weekly market reports.

With these low levels of supply, wool prices are expected to stay high. While high wool prices are difficult to hand down to the consumer markets, they are vital to keeping wool growers in business. The wool growers we talked to explained that all money received from wool sales gets directly reinvested into feed in order to keep the remaining sheep healthy and fit.

If you are interested to learn more about the Australian drought and its toll on the Australian wool industry, we recommend you watch the latest AWI video documenting the situation well.

The month of April and beginning of May have brought along some very welcomed rainfall. In the warmer and more arid regions, the rain allows grass to grow back. In colder areas of the country, temperatures are already too low for grass to grow. Sheep health conditions appear to be better compared to last year and wool growers remain committed to their sheep as they take good care for them through the winter. Of particular attention will be the ewes who will be expecting lambs in the spring – the future of the flock.