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Tuesday, May 26, 2015

El Nino impact on sheep, lambs and wool

By Andrew Woods, ICS

Key points

  • Australian sheep numbers have fallen by 2-3% in El Nino years during the past 55 years, with the flock size shrinking in two thirds of El Nino seasons.
  • Wool production in seasons containing an El Nino (dry spring) has generally shrunk by around 3%.
  • Lamb production does not change greatly in El Nino years, but fall in 80% of the years following an El Nino event, by around 2%.

2015-05-26 El Nino And Wool FIG 1

2015-05-26 El Nino And Wool FIG 2

2015-05-26 El Nino And Wool FIG 3

It goes without saying that the prospect of an El Nino year is not very palatable. However, the seasonal outcome of El Nino years varies. So what can we learn from the changes we have seen in the past for sheep numbers, wool and lamb production in response to swings in the El Nino Southern Oscillation (ENSO)?

Figure 1 analyses the annual change in the Australian flock size according to whether the wool selling season contained an El Nino year, a La Nina year, or was neutral. The production data has been adjusted with a 10-year centred moving average to reduce the effects of long term trends. Since the late 1950s, there have been 17 El Nino years and 13 La Nina years, so they are quite common. The analysis breaks the change into quartiles. This gives a feel for the probability of different levels of change according to the type of weather system that is operating.

The El Nino line in figure 1 crosses below zero at 69%. This means that, during the past 55 years, sheep numbers have fallen in two thirds of El Nino years. The ratio reverses in La Nina years, with sheep numbers rising 70% of the time. The average or median effect of an El Nino year is a minor fall of 2-3%. The neutral and La Nina lines progressively move to the left on the graph, with more years having an increase in the flock numbers - which makes sense. While an El Nino year tells us the probability of a fall in the flock size is more likely, note that the flock size has risen and fallen in all states of the ENSO.

Figure 2 extends the analysis shown in figure 1 to Australian wool production, for the same period of time. The extreme changes in wool production (high and low) are much greater than that seen in the flock changes. However the median change in El Nino years is around a 3% fall, with wool production falling in two thirds of El Nino years.

What about lamb production? Lamb production in the years containing an El Nino shows little response. Given that El Nino years are effectively dry springs, this makes sense as farmers will have planned their lamb production before the El Nino turned up. The effect of El Nino, however, does show up in the following year, with lamb production falling in 80% of the years after the El Nino event. Figure 3 shows the analysis of lamb production in the year following the El Nino event, from 1981 onwards. Like the sheep and wool analysis the median effect on lamb production is minor, a fall of around 2%.

What does this mean?

Sheep and wool production in El Nino seasons is generally skewed lower, but does not always fall. As a rule, production falls for wool (and sheep numbers) by 2-3%, with volume lower in two thirds of El Nino years.  For wool, the real effect is not the change in overall volume but the change in individual micron categories. For lamb production the effect comes the following season. Lamb production is lower in 80% of the years following an El Nino season, with median change being a fall of 2%. Such a fall in supply for lamb is supportive for prices.

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