Wool prices unravel in tough year Chinese thirst for dairy imports slowly returns
Many farmers are not covering the costs of shearing sheep after what a wool broker has described as the worst season for 50 years.
In the last year prices for crossbred fleeces have tumbled from $4 per kilogram to $2, and a lot of wool is not being sold. Peter Tate of Fred Tate Wools in Napier said perhaps a third of the season’s production - 200,000-300,000 bales - was unsold.
‘‘That’s a bit of a worry because it’s going to hang over the market for the next year. Some people are saying ‘blow it, I’ll keep it in the shed’, others are saying ‘get rid of it, move on’. It’s been the worst for 50 years,’’ Tate said.
The dismal state of the industry is being blamed on a lack of demand from China as well as a failure to promote wool in the face of competition from synthetics. The Chinese still have a lot of unsold yarn from last year so they are not buying. Tate said it cost about an average of $3.20-$3.50/kg to shear a sheep. ’’If they’re shearing full fleece they’ll probably get 4kg of wool off it, that’s $8 so they are going to cover their costs, but this time of the year it’s second shear so there’s likely to be only 2.5kg wool on a sheep. By the time they pay the shearer and all the other costs, they won’t be covering their costs.’’ Tate backed up reports that many farmers were trying to reduce costs by cutting down on the number of shed staff involved in wool preparation. ’’It’s pretty hard to be enthusiastic and spend extra money. People are pretty disillusioned, they just want to get the wool off so it’s a management/ health thing. They’ve lost interest in it,’’ Tate said.
Federated Farmers meat and fibre chairman Miles Anderson said any lambs being shorn this season were at the cost of farmers.
He was like other farmers, and had a lot of wool that has not sold.
‘‘The hope was the price would improve but it’s nosedived. It starts to discolour and then it has to get retested and could be downgraded. Wool hasn’t been playing its part in the sheep story for the last 30 years. Back in the 1980s about 60 per cent of a crossbred animal’s value was in its wool. Now you’d be lucky to get 10 per cent of farm income off wool.’’
There was no easy fix. Resentful that several hundred million dollars of reserves had disappeared from the former Wool Board, farmers had voted down a move three years ago to introduce a 3c per kg levy. Earlier this year Federated Farmers surveyed its members to see what price was sustainable for them. The figure most arrived at was $6/kg for crossbred wool. Anderson said the positive qualities of wool did not appear to resonate with consumers. Chinese demand for dairy products is continuing to grow but not at the breakneck pace of a decade and more ago, Rabobank analyst Sandy Chen says.
Rosy projections for the growth of the Chinese infant formula market have proven to be wide of the mark. Two years ago Euromonitor forecast that with the loosening of the one-child policy, sales of infant formula would jump from US$19 billion to more than US$50b by 2020.
Shanghai-based Chen, in New Zealand last week to provide a first-hand insight into China’s appetite for dairy imports, said people were reluctant to have more than one child because of the perceived high cost of bringing up children.
‘‘Euromonitor was pretty optimistic but they have revised down their projection sizably, it’s still a growing market but not at the same rate - about 8-9 per cent a year, more in line with what we were looking at.’’ Two years ago Fonterra decided to attempt to cash in on the infant formula market by investing $700 million for an 18.8 per cent stake in Chinese company Beingmate. So far no product has been sold as a result of the deal. After criticism over the focus on infant formula, the Chinese government has promoted breast feeding as healthier, and parents have agreed. Chen said after a two-year hiatus, demand for imported dairy products was lifting, partly because Chinese production had fallen, although it was difficult to see transparency in the statistics.
In the early 2000s growth of imported products had been as high as 20 per cent, but today that was down to 4-5 per cent, following the melamine scandal of 2008. Last year domestic milk production fell by 4 per cent and the leading dairy provinces of Inner Mongolia, Hebei and Henan recorded a drop of 3 per cent.
Chen predicted that, with a low level of inventory, China would import more dairy products in the second half of this year.
China has more large scale dairy farms and small farmers are exiting.