Gaining value from wethers

Wooly wethers may be 'like shares, but better'

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There could be an opportunity for growers to take advantage of the current situation, purchasing wooly wethers in a time when the market has discounted the value of the wool available.

There could be an opportunity for growers to take advantage of the current situation, purchasing wooly wethers in a time when the market has discounted the value of the wool available.

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AuctionsPlus on the surprising opportunities to be found with wooly wethers.

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The Merino wether has traditionally been an article bought and traded in Australia for one simple reason: wool.

More recently however, the versatility of the Merino wether in the sheep meat and live export market has resulted in the animal being bought for more than just the valuable fibre grown on its back.

With the wool market suffering the full effects of COVID-19 and the AWEX Eastern Market Indicator (EMI) falling to its lowest point since 2015, questions are being asked surrounding profitability of the Merino wether and what factors are currently affecting buyers' decisions.

The AuctionsPlus Market Insights team have investigated sale data of Merino wethers sold online from 2016 to present, with specifications fitting between 30 to 35 kilograms and 45kg to 50kg (liveweight).

The EMI has been used to illustrate the effect which the wool market has on prices and the wooly sheep premium.

The yearly difference for Merino wethers with less than 0.5 inch and more than 2.5 inches of wool vs the average yearly AWEX EMI. Source: AuctionsPlus

The yearly difference for Merino wethers with less than 0.5 inch and more than 2.5 inches of wool vs the average yearly AWEX EMI. Source: AuctionsPlus

Since 2016, the average price difference between Merino wethers weighing from 30kg to 35kg with more than 2.5-inches of wool, compared to wethers with less than half an inch of wool sits at $19 a head.

Wethers weighing between 45kg and 50kg, when compared with the same wool measurements, average a price difference of $18.

During the observed time frame (2016 to present) premiums have ranged from $35/head in 2017 down to just $1 in 2020.

Interestingly, in years where the wool market has weakened, buyers appear to totally discount the value of the wool, as seen in both 2016 and 2020.

This poses the question, are buyers relinquishing an opportunity in the market due to wools current unfavorable light?

To use the current 2020 market as an example, a 35kg wether with a half inch skin compared to a wether of the same weight with a 2.5-inch skin, both cutting 3kg of 19-micron wool; buyers are gaining a wool cheque greater than the $1/head premium wooly wethers are currently achieving.

Selling the wool for 905 cents a kilogram (greasy), there is a $27 wool cheque available, minus shearing costs and the growers time and labor there is still value for growers.

Another component of the wool market that must be taken into consideration is the non-perishable nature of the fibre.

Should growers have the opportunity, wool can be stored until the market is in a more favorable position.

For example, in 2018, 19-micron wool was trading at 1700c/kg (greasy), a wether cutting 3kg would return a $51 wool cheque. The widespread rainfall many growers received so far in 2020 has mean't many have looking for sheep to capitalise on a paddock full of feed.

The wooly Merino wether provides a great option providing two profit streams through sheep meat and a wool cheque.

Growers can store wool with their broker, so that the wool is insured and be may offered for sale when the market recovers from COVID-19.

To quote Stephen Curry from the 2002 Australian movie, The Nugget, "It's like shares... but better."

So, will growers follow past trends and only add value to the wooly wether when the wool market rebounds? Or, will we see growers take advantage of the current situation purchasing wooly wethers in a time when the market has discounted the value of the wool available?

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