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Thursday, July 06, 2017

Wool: A dry winter, what next?

By Andrew Woods  |  Source: BOM, AWEX, ICS

Key points

  • As we come out of a wet year (2016) the odds are 2017 will be drier, with the June quarter unfortunately proving to be so.
  • The projected rolling 12 month rainfall rank fall through the 2017-18 season.
  • The projected rainfall rank uses median rainfall levels, so it shows the level at which there is a 50% chance of higher rainfall and 50% chance of lower rainfall.
  • Lower rainfall will flow through to lower clean fleece weights and lower fibre diameter in the wool clip in 2018.

2017-07-06 Wool Fig 1

2017-07-06 Wool Fig 2

2017-07-06 Wool Fig 3

A dry winter is not the best lead up to a new season. This article takes a look at recent rainfall across the various sheep regions and then looks at an Australian weighted rolling 12 month rainfall rank with projections developed using median historic rainfall.

Figure 1 shows the rainfall rank for the June quarter for 20 sheep regions around Australia, along with the consolidated Australian ranking. This analysis compares the rain for selected sites in each region for the April to June period and compares it to previous April to June periods. There are some regions with rainfall around median (+/- 15%). Western Australia, which helped bolster Australian wool production in 2016-17, has had a very dry June quarter (in the lowest decile). There are quite a few regions in the 20th to 30th percentile levels for the June quarter. The overall Australian ranking was 31%, dragged lower by a dry June (which had a ranking of 16%). The Bureau of Meteorology three monthly rainfall decile map shows the current situation nicely.

Figure 2 shows a rolling 12 month rainfall rank which is a weighted average across all the sheep regions. It runs from 1986 through to June, and then is projected using median historic rainfall (shaded area). The median projection shows the rainfall rank for which there is a 50% chance of exceeding and a 50% chance of being lower. The drought years of 1994, 2002 and 2006 show up as dips down to the 10th to 20th percentile level. 2011 and early 2017 have high rankings, reflecting the high rainfall in the year leading up to these periods. The projected rainfall rank falls to around the 35th percentile by March 2018, as the rolling average drops out the wet months of 2016 and substitutes the drier months of early 2017. Good rainfall in the coming spring may pull this rolling rank up significantly, but the projection is showing us that is a low probability outcome.

Figure 3 shows the year on year change in the rolling 12 month rainfall rank shown in Figure 2. The year on year change in the rainfall rank is a proxy for change in seasonal conditions. For wool production clean fleece weight are correlated to the rolling 12 month rainfall rank while change in fibre diameter are strongly correlated to change in the rainfall rank (A neglected wool production factor). Figure 2 shows a lower rainfall rank, so clean fleece weights are likely to fall by 5% to 8% below year earlier levels in 2018. Figure 3 shows that we can expect the fibre diameter of the merino (and crossbred) clip to fall away from late 2017 onwards. This means more fine wool and less broad wool, with the overall total lower.

What does this mean?

There is no equilibrium for seasonal conditions, as it is in a constant state of change. The changes we have seen in 2016-17 for the wool clip were a function of high rainfall. Now the change is set to swing the other way (at this stage we do not know the full extent of this swing) with clean fleece weights and fibre diameter falling in 2018 season. Less broad merino wool will provide a challenge for the supply chain, where prices are currently in the 1500-1600 cents range despite increased supply this year. Reports indicate high fine wool premiums have pushed demand into broad merino (hence the strong prices) just as the supply is going to shrink.

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