The crisis of confidence in the wool industry has reached the mainstream media in recent weeks, appearing in national papers and on the television. Anecdotally we are hearing of merino flock dispersals every week and scanned in lamb ewes making little more than meat value. Profitability is the issue, and there is no easy fix.
In reality, merinos have been on the nose for some time, especially in higher rainfall grazing areas. The recent spread between lamb and cattle prices, compared to wool, may have hastened the exodus of wool growers.
Agriculture Victoria, the state government Ag research and extension body, are thankfully still producing their excellent benchmarking report, the Livestock Farm Monitor Project (LFMP). The LFMP reports on farm productivity and profitability across the state, and reports the results (Livestock Farm Monitor Project | Agriculture in Victoria | About | Agriculture Victoria).
The Western Victorian data in the LFMP goes back just over 50 years, with Northern Victoria and Gippsland having 20 years or results.
Figure 1 shows why wool sheep have been on the decline in Western Victoria, and likely other high rainfall grazing areas. The last time wool enterprises outperformed lamb on a gross margin per hectare basis was in 1987-88, at the height of the Reserve Price Scheme.
Since 1987-88 lamb gross margins have been more than $100/ha stronger than wool in 25 of 36 years. We need to be a little careful making these broad comparisons, as it’s likely more wool producers in the LFMP are in lower rainfall parts of the region, while lamb and beef are in higher rainfall zones.
This is somewhat illustrated by the Northern Victoria data, which shows wool enterprises achieving average gross margins closer to lamb in most years (figure 2).
Figures 1 and 2 show that 2023-24 was a poor year for all three grazing enterprises, which brings us the reported quickening of the merino exodus in 2024-25. Figure 3 tells part of the story. With lamb prices having moved back into the upper end of the five-year price range, they are a more attractive proposition than wool which is bouncing along the bottom, if we ignore the Covid doldrums of 2020.
The last time we saw the merino flock halt it’s decline was in 2018-19, when wool the 19MPG was 3.5 times the Eastern States Trade Lamb Indicator (ESTLI). To get back there the 19MPG would have to rally to over 2500¢/kg clean. To draw hectares away from lamb, beef and cropping my guess would be a wool price of 3000¢ plus, and that’s if other commodities stay where they are.
Merino wool prices can be volatile, and we saw such a rally from 2016-2018, and we will likely see it again at some stage. Whether wool producers can hold on long enough to enjoy it is another question.