Tom Ashby in his conference opening remarks said, “If you breed a really good fibre, you can get a good pay for it. The only challenge remaining is marketing the wool”. On the same day of April 12, 2018, Walter Baethgen, speaker on the topic: “Climate Risk Management in the agricultural sector”, concluded is wonderful presentation with the words; “there are only two enemies troubling the farmers and those enemies are predators and politicians”. He furthermore said that the predators at least in the United States of America, they have helicopter campaigns and shoot them from the air but as to the politicians they have no solution.
The truth and very hard facts, always have their own way of reaching out to the end-user in desperate times. It goes without saying, it is now official information, the Ministry of Small Business of the Government of the Kingdom of Lesotho is captured by certain Chinese traders, and the Minister who does not only lack academic education and experience to run that Ministry is perceived as busy spreading misinformation to our people, with the sole aim of starting infights in the wool and mohair sector.
I was running in the bursting sun in the afternoon of a junior show at Altos del Arapey Resort and Golf Course on Monday the 9th of April 2018. This wonderful resort was the venue of the 10th World Merino Conference Show and Stock Auction, as the conference was actually in Sheraton Hotel in the city of Montevideo.
At the time that an old man who would later introduce himself as Anthol Frederick called my attention I had just had an interesting interview with Cecelia Cavada and Miriam Bahamonde. Both women were from Agropat, a wool broker company registered and operating in South Chile, a region of the best Merino wools in that country.Anthol Frederick has a very interesting story as he had been working with wool and had travelled the world as a very young man with proceeds derived from shearing of wool not only in Australia but England as well. At age 24, Frederick was not only a shearer but a classer, a task that enabled him to travel for two years with earnings derived from his wool jobs. This was between May of 1974 to July of 1976. The trip started off by leaving Australia to visit Africa, and the refuelled travel costs by shearing in England for two shearing seasons of 1974 and 1975 and then proceeded to Middle East and Asia then back to Australia via Singapore.
Frederick has just retired last year 2017, after 40 years as wool broker and breeder, whose responsibilities were not limited to wool shearing and classing but also wool analysis and breeding pairing of what type of ewe needs to mate with which type of ram, to produce what type of wool in so many microns, for a specifically contracted or open international wool market.
Under his belt, Frederick has worked for years for Grazcos Co-op and later Dalgety and Landmark reputable players in the world wool industry. Amongst his duties was to participate in Australian Sheep and Wool show every July in Bendigo, which is Central of Middle Victoria. In that show, 3,000 sheep are exhibited of which 2,000 of such are Merino. It is probably worth mentioning that South African and English breeds are also exhibited in this show.
While this show has a very big commercial display of livestock, there is another very important component of the show, which is the fleece show, and there is very serious competition here where each fleece is tested like a bale. The test includes measurement of microns, yield meaning how much of clean wool? Length, strength and vegetable matter being colour, character or style and uniformity or evenness of wool. According to Frederick all wool testing is benchmarked to the International Wool Testing Authority (IWTA) standards.
It must be noted that in the conference, the Australians had the biggest foreign delegation as they are actually the biggest players in the Merino industry with 70% production of world wool. Therefore they have much influence not only in the right genetics, but also experience that is why most of their breeders are consulted in most of the wool producing countries.
Methods of selling wool according to the retired Australian brain box
1)Auction – According to Frederick, auction is by far the most preferred method of selling wool and world wool sold through auctions amounts to between 85 – 90% and in Australia auctions are on a weekly basis. All wool buyers have either connections, representative or links to every wool auction in the world, a point that makes this method the most popular.
2) Tender Sales – This method is commonly used when the auction is on recession and during weekends and holidays. The seller normally get his wool tested and invite the buyers to submit a tender on each line. The broker can then either select or reject the tender. This is normally a quicker way of selling especially for desperate farmers.
3) Computer / Internet Sale – This is a good method of selling wool, though it is used as second attempt to finish an order on the side of the buyers, while on the side of sellers it is normally used to clear off sale of wool unsold from auctions.
4) Private Sale – In this method the farmer shows the customers the wool and the testing results for the Wool Testing Bureau and enable the customer to make an offer. The advantage is that there is no charges for storage, insurance and transportation of wool however the disadvantage is that the seller does not know how much his/her wool product is worth. Remember in this method the seller just admits to the offer made by the buyer.
It is a method that suites some people who do not really value their products but just interested in whatever little they can score out of a sale. The major disadvantage of this method is that there is no competition at all, therefore the buyer calls the shots.
5) Forward Selling – In this method a sale is negotiated up to two years in advance and have to commit a volume of wool to a forward price which is in a future could be 3 years and it is subject to whatever the actual wool test results are.
The price is then adjusted to the test results on the forward price. It is important to note that the forward price is based on the price index.
The deal is price guaranteed and farmers can trade off the deal with banks as they are guaranteed the sale. As far as the risk management issues for the farmers is concerned, most farmers would do this deal either 25% , 50% or 75% of their product depending on how liquidity desperate or tight they are.
When the wool market was depressed few years ago, the farmers considered the auction price expensive. Unfortunately there is cost generated by an actual act of knowing the value of wool, as wool has to be taken to a laboratory for valuation and classification or grading.
Frederick argues that brokers are transparent or have to be transparent, and this is comparing to the private sale where the farmer does not or would not really know the value of the product, but just be interested in cash.
Therefore considering that all the wool sales in the world are based on the US Dollar exchange rate, even Australia as the biggest wool producer, and China as the biggest buyer still base wool sale on the US Dollar exchange rate. We should all agree that all wool methods of sale highly depend on the period of sale, and the circumstances of the buyer and seller.