By Andrew Woods | Source: AWPFC, ABS, Livestock Dynamics, ICS
The preliminary ABS flock estimate for the 2016-17 season shows an increase of 4% on the previous season. This increase appears to be larger than conditions suggest should have occurred. This article takes another look at the Australian flock size with some modelled projections for the next couple of seasons.
The preliminary ABS Principle Agricultural Commodities report is available Here. In recent years the ABS has changed the structure of their sheep survey (by lifting the minimum enterprise by value surveyed) which reduced the estimated flock size by around 4% compared to earlier (pre 2015-2016) surveys. Kimbal Curtis at Livestock Dynamics is doing some of the number crunching to sort out this issue for the AWPFC, and their latest report is available Here.
Figure 1 shows the year on year change in the flock size as estimated by the AWPFC, with adjusted ABS estimates used for the past two seasons. A model from Independent Commodity Services of the year on year change in the flock size is also shown in Figure 1. The model is driven by changes in a rolling 5 year price ratio of merino wool to wheat prices, lagged by a year and a rainfall factor, weighted across the various wool producing regions. In essence the model assumes sheep numbers are adjusted for the key wool to wheat price ratio and seasonal conditions.
For 2016-17 the ABS sheep survey reports an increase of 3.9% compared to the ICS model showing an increase of 0.9%. The ABS estimate is the second largest rise (after 2010-2011) since the late 1980s.
For the current season (which is nearly finished), the ICS model projects a fall in the flock size in the order of 2%. This fall is based on the assumption that recent high wool prices have yet to be reflected in sheep numbers, so the effect of dry seasonal conditions is fully felt in the lower numbers.
Looking into 2018-19 and assuming median rainfall, which sounds good at present, the ICS model projects an increase in sheep numbers of 2.7% which is primarily driven by the increase in merino wool prices in relation to wheat prices during the past 5-6 years. Seasonal conditions in 2018-19 could lift the increase (with more rainfall) or counter the rise (with a drought).
An extra year of projection has been added, again with median rainfall, where wool prices are assumed to ease by 10% and wheat prices are maintained (a naive forecast). This minor adjustment in the relative prices (which is spread across rolling five year medians) is enough to drop the change in flock size to near zero.
It looks to be a case of one step back and then one step forward for the Australian flock. Seasonal conditions are acting as a drag on the flock size in 2018. In the coming season 2018-2019, we should see an impulse to increase numbers (by 2-3%) coming from higher wool prices of recent years, that’s if seasonal conditions allow.
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