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Friday, January 15, 2016

Does prem shearing for drought lots pay?

By Andrew Woods  |  Source: AWEX, ICS

Key points

  • Wool style (yield) and staple strength deteriorate in drought lots.
  • Discounts for wool with low yield and staple strength are minimal by the standards of the past two decades.
  • Extra shearings to avoid offering lower yielding/ lower strength wool do not stack up given the current wool market price structure.

Prem Shearing For Drought Lot Fig 1

Prem Shearing For Drought Lot Fig 2

Following a tough spring in many regions, consideration is being given to putting sheep in feedlots in order to preserve improved pastures. One of the issues with feedlots is the loss of style (basically the drop in yield) and usually a drop in staple strength from changes in diet. This article takes a quick look at the effect of selling low yielding, low strength wool versus shearing sheep before putting into a feed lot.

In the example shown below shearing normally takes place in June. In Figure 1 an estimate of per head income and costs (shearing and crutching) are given for 2016 and 2017. Prices were taken for 18-18.5 micron wool from December. For the 2016 shearing it is assumed the wool sold is generally priced as pieces, with a low yield and tensile strength. The (true) extreme story of a broker putting a butt of wool from sheep out of a feed lot following the 2002 drought on the scales, and being overweight, comes to mind. The wool sold in 2017 is assumed to revert to a standard specification, cutting around 3 kg clean per head.

15 years ago the prospect of selling fleece wool at pieces prices meant a hefty discount in the order of 25-30%. In comparison pieces in 2015 generally have been selling for a discount in the order of 8-10%. In this example the wool has been discounted by 8% for the low yield and strength.

Figure 2 shows the income and costs (assuming shearing only) for sheep shorn in January 2016 upon entry to the feedlot, with an adjustment shearing in the following spring and finally a third shearing to bring them into line in June 2017 with the normal program. As the article in November showed there is a only small discount for short stapled wool, so the income from the three shearings is close to that of the two shearing scenario. Cost wise the three shearings (assumed to be $7 per head) outweigh the cost of tow shearings and two crutchings.

The net effect is given in Table 1, with the normal two shearing program coming out in front, despite the 2016 clip being priced as pieces. You can run adjusted scenarios for you own operations, but from a wool quality perspective introducing extra shearings in order to avoid discounts at sale does not stack up.

What does this mean?

15-20 years ago discounts for low yield and low staple strength were punitive. The strength of the cardings market has reduced discounts for short staple wool and pieces types. This means that spending money in order to preserve wool yields and staple strength, in the face of putting sheep into a drought lot, does not really stack up.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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