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Tuesday, August 25, 2015

How accurate are flock size and wool production estimates?

By Andrew Woods, ICS  |  Source: AWPFC, ICS

Key points

  • The AWPFC produces three forecasts of sheep numbers and wool production beginning in the autumn prior to the financial year start.
  • In recent years, the accuracy of sheep number projections has started from a wild base and then gradually improved.
  • In contrast, the estimates for wool production have not improved in accuracy as they progress through the reporting cycle for each season.


2015-08-25 AWPFC Estimate Accuracy FIG 1

2015-08-25 AWPFC Estimate Accuracy FIG 2

2015-08-25 AWPFC Estimate Accuracy FIG 3

The Australian Wool Production Forecasting Committee (AWPFC) released its August report on Friday, providing second estimates for the current season flock size, sheep shorn, greasy fleece weight and shorn wool production. How accurate have these estimates been in the past?

Each year, the sheep and wool industry tries to understand the change in sheep numbers and, through that, production that is going to occur. Figure 1 shows the year-on-year change in sheep numbers and shorn wool production from 1999-2000 through to last season. These production levels have been quite volatile.

In the sheep industry, we have surveys carried out by the Australian Bureau of Statistics (ABS annual – available 7‐11 months after collection), ABARES (annual – available 9 months after the end of the financial year) and AWI/MLA (three times per year). These surveys provide a base from which production estimates, or really estimates of the change in production, are made. 

The AWPFC starts forecasting sheep numbers and wool production in the autumn leading up to the season, provides a second forecast mid-year (which has just come out) and third forecast late in the calendar year. By the next autumn, the financial year is nearly over so the focus is on tidying up full year estimates of production.

Figure 2 shows the variation of AWPFC estimates of change in the flock size from the actual change, for the past five seasons. For each season there are three forecasts and then the actual (which has no variation from itself). In recent years, t6he first estimate has been a fairly wild one, ranging from nearly 6% below the actual change to nearly 4% above. The later estimates improve in accuracy, but you still need to allow a couple of percent for error. So the current forecast of a drop in the flock size of 4.8% (72.6 million to 69.1 million) really should be read as a likely fall between 2.8% and 6.8%.

Figure 3, using the same format as figure 2, shows the variation in AWPFC forecasts for shorn wool production alongside the actual change. In recent years, the accuracy of the later AWPFC projections have not improved, which is something of a surprise. The current projections forecast a fall in shorn wool production of 4.3% (from 347 to 332 million kg).The experience of recent years suggest an error factor of 4% or thereabouts should be used. This translates the current forecast for shorn wool production into a range between 0% and minus 8%.

What does this mean?

As the sayings go, forecasting is difficult, especially about the future. For processors with large investments in fixed capital (abattoirs, scours, wool combing plants and so on), throughput is a key factor to profitability, just as it is for farms. Changes in supply of sheep, lambs and wool are of great interest to the supply chain where they might be of minor interest to an individual farmer. The challenge with projections is to understand the level of error inherent in the estimate. Any projection should be read with this error in mind. For the AWPFC flock size projection, an error factor of 2% looks a reasonable number to use (the projection plus or minus 2%) while for shorn wool production the error factor is larger, around 4%.

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