Wool Technology and Sheep Breeding
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1 Wool Technology and Sheep Breeding Volume 47, Issue Article 4 Product-process groups and wool price. D Maddever D Cottle Copyright c 1999 Wool Technology and Sheep Breeding. All rights reserved.
2 Maddever and Cottle 38 ISSN Wool Tech. Sheep Breed., 1999,47 (I), Product-Process Groups and Wool Price Denis Maddever and D. Cottle Grower and Trade Division, WRONZ, Private Bag 4749, Christchurch, New Zealand Summary The key blending parameters can currently define fifteen main wool product-process groups for New Zealand wools. Greater price differentials for changes in parameters are available in the high value products, e.g. worsted woven apparel fabric, so demand affects the price of wool types differently. Breeding management and marketing decisions may cause wools on the threshold of parameter values to shift between product-process groups with resulting different price-parameter premiums. Innovations in processing and product development can result in the formation of new groups and changes in the boundaries of the groups. This paper discusses the sources and quality of wool price information available to growers in New Zealand and highlights the need to relate this information to different product-process groups. In sheep breeding the optimum selection direction for economic improvement is usually based on current prices. The effects of a breeding programme take some years to spread through a flock and in the meantime there are likely to be changes in processing and product development. Forecasting wool prices, to construct a selection index requires prediction of these changes. Keywords: wool price signals; product-processing groups; sheep breeding. Wool Price Wool requirements are reflected in wool's price, which is determined by the interaction of demand and supply curves for wool of different types. A producer can obtain a price for his wool by a number of selling methods: Forward Contracting Electronic Selling Open-cry Auction Sale By Tender Private Treaty Price On Result Direct To Mill Wool Technology and Sheep Breeding, Vol. 47, 1999
3 39 Product-process groups and wool price. Denis Maddever and D. Cottle 39 Open-cry auction, although declining, is the main price discovery method. Its disadvantages include: barriers to communication and information flow, costs involved with bearing trading risks, small lot sizes and, even within a single auction, price volatility for similar lots. However, the auction system primarily sets the wool price for all other sale methods as buyers can usually source wool from the auction. The main factors that influence auction wool price fluctuations during a season are economic cycles, prices for other fibres, demand from the major purchasing countries, exchange rate cycles, and in the longer term marketing programmes and product and process innovations (Wool Market Review 1997). From a sheep breeding perspective, long term price premiums and trends are important in determining the relative importance of changing different wool parameters. From the processors perspective, price stability is highly desirable. Sources of Price Information New Zealand Wool Group publishes the biweekly Wool Market Review and less frequently the Fine Wool Review which summarise current wool prices at auction. At the end of each season a summary Statistical Handbook is published. A recent innovation in the end of season reviews has been the publication of multiple linear regression analyses of price results for the season's auction data, broken down into five fibre diameter categories. Premiums for fibre properties other than fibre diameter and their relative importance appear highly dependent on fibre diameter (Tables 1 and 2). TABLE 1 : Wool auction premiums ( ) for changes in strong fleece wool properties. (source: Wool Market Review 1998) Parameter 32-37m Fibre Diameter 21 Yellowness (Y-Z) 8 Staple Length 1.1 Vegetable matter 20 High Bulk (subjective) 6 Pre-lamb shearing 9 Average price 384 >37rmn Unitslkg clean 4 chnm 2 clunit 0.1 chnm 10 c/% 11 C 3 C 342 c A study, using a hedonic model (i.e. where the quality characteristics are considered), of the price of wool of different types over a short time period in New Zealand and Australia (Angel et al., 1989) indicated that country of origin had no effect on price. Therefore, an alternative method for determining wool value for fine and mid-micron New Zealand wool producers is to access Australian price information from a much larger database than is available in this country. Wool Technology and Sheep Breeding, Vol Wool Technology and Sheep Breeding, Vol. 47, 1999
4 Maddever and Cottle 40 Product-Process Grows 40 Table 2 Wool auction premiums ( ) for changes in fine fleece wool properties. (source: Fine W&OI ~eview 1998) - Parameter cxhn 2@24mm 24-32mm Unitslkg clean Fibre Diameter chnm Yellowness (Y-Z) clunit Staple Length chnm Vegetable matter c/% Fernmark Quality Program c Average price c Australian wool auction price data are available on the Internet for wool up to 32- on a daily, weekly or ieview basis. The most useful facility is the AWEX site, which is now only available to paying customers. The major Australian brokers and processors also provide reports, including: 1. Elders publish a comprehensive daily report for northern, southern and western regions covering all wool sold in Australia ( wool.htm1). These report sales of wool from 14.5 to 32.0 micron in groups of 0.5 micron for all styles sold on the day in each of the selling regions. The reports produced are calculated averages of the micron, yield, length, strength and the clean pricekg for each of the main pre-defined wool types sold. 2. WesFarmers Dalgety provide online market information including AWEX daily wool prices and wool futures ( The ability to generate personalised graphs of historic wool prices is also available. Forward pricing information and access to Daily Wool Futures tables is available. 3. Michells report price changes at recent auctions ( 4. BWK provide weekly market reports including an outlook and news section ( Interpretation of Price Information The vagaries of changing exchange rates, market confidence and very short term demand fluctuations create very 'noisy' wool auction data. One approach to determining a relative clean price for different lots of wool is to adjust for the market indicator and the measured yield, thus eliminating the overall average market trends. Clustering similar wool types simplifies the data (Carnaby et al., 1988), and price variations at the sale Wool Technology and Sheep Breeding, Vol47 Wool 1999 Technology and Sheep Breeding, Vol. 47, 1999
5 41 Product-process groups and wool price. Denis Maddever and D. Cottle 41 lot level are removed. This approach produces more stable relative premiums for fibre properties that alter on a seasonal basis due to supply variability (Maddever et al., 1984) and move more slowly due to long-term trends. The highly non-linear nature of the price-diameter relationship has been tackled in a number of ways: five fibre diameter groups (e.g. Wool Market Review 1998, Fine Wool Review 1998) Filter tree model (six product-process groups, Stanley-Boden et al., 1986) Quadratic transformation (Angel et al., 1989) Exponential transformation (Maddever et al., 1991) From a processing perspective it is the square of the diameter (quadratic) that is important in determining the limiting count of yarn that can be made. However, Maddever et al., (1991) found an exponential transformation was optimum in explaining price variation and this was not altered by the introduction of other parameters (some of which are correlated with diameter). They also found that the form of the most suitable transformation alters little from one season to the next. Wool Technical Parameters Alliances between woolgrowers and processors are likely to result in wool prices being more closely related to the effects of wool parameters on processing performance and end product value, i.e. technical performance. An appropriate set of parameters needs to be defined to clearly specify a wool processor's requirements. Irrespective of breed of sheep and method of aggregation, two parcels of wool for woollen processing may be regarded as being identical for processing into yarn and will produce identical end-products, provided they have identical test results for the appropriate key parameters. For woollen and semiworsted yam manufacture the parameter list: diameter, yellowness, brightness, medullation, kemp fibre, vegetable matter, bulk, carded length, short fibre, long fibre and black fibre has been show to be necessary and sufficient (Carnaby et al., 1988). This allows mill customers to accurately define their blend qualities in terms of objective scoured wool tests. The technical requirements of customers in the supply chain vary in their levels of sophistication. Ram breeders supply the essential genetic material required by commercial wool producers, often with minimal specifications. Wool Technology and Sheep Breeding, Vol. 47, 1999 Wool Technology and Sheep Breeding, Vol
6 Maddever and Cottle Product-Process Groups Commercial wool growers supply yarn manufacturers with a raw fibre via various marketing and selling mechanisms. This is the only stage in the supply chain where a product is often produced without a specific customer in mind. Yarn manufacturers supply yarn to the fabric makers' specifications. Blends of various raw wools are used to meet the yarn specifications while minimising cost of production. There are often intermediaries such as wool exporters, scourers and toprnakers involved. Knitters, weavers and tufters supply textiles to garment makers' or retailers' specifications. These require yarns that meet very tight specifications for yarn count, yarn elongation, yarn strength, Uster (yarn thickness) variation and yarn hairiness. All of these characteristics are important to avoid imperfections in the product. Garment makers supply garments to order that satisfy the retailers' needs. They must meet strict specifications for weight, construction, finishing, colour and surface textures. Retailers attempt to supply what the consumer wants. Products need to be free of imperfections in the yarn and construction, they need to be delivered on time and at the right price. The retailer needs to have product variety and carry stocks of product. Consumers are offered a huge range of products and they usually have little fibre loyalty. The apparel consumer wants style, colour, finish, comfort and value for money. The days of wool producers creating a commodity with no specific customer in mind may be numbered. Information technology and wool metrology can provide the language for accurate and relevant communication between producers and processors. Growers who make use of this technology are more likely to produce wool that is 'fit for purpose' and hence be in demand further down the pipeline. Product-Process Groups Every wool use has its own requirements in terms of processing route, and fibre, yarn and fabric properties (Table 3). Wool Technology and Sheep Breeding, Vol47 Wool 1999 Technology and Sheep Breeding, Vol. 47, 1999
7 43 Product-process groups and wool price. Denis Maddever and D. Cottle 43 Table 3 Processing Route (%) and End-uses for New Zealand Wool (Source: Wools of New Zealand 1997) Breed Micron % of Worsted Semi- Woollen End Use clip worsted Merino c High quality, light weight, woven worsted and fine woollen fabrics, knitwear and hand knitting yarn Halfbred Medium quality worsted Comedale fabrics, woollen apparel fabrics, machine and hand knitting yarns, upholstery, blankets, tweeds, carpets. Fine Heavier worsted fabrics, Crossbred woollen apparel fabrics, heavier machine and hand knitting yarns, upholstery, blankets, tweeds, carpets. Medium Carpets, blankets,tweeds, Crossbred heavier woollen apparel fabrics, tropical worsteds, upholstery, needle felts, heavier handknitting yarns Strong > Carpets, lustrous coarse Crossbred fabrics, upholstery, industrial fabrics Fifteen product-processing groups can be identified based on the key blending parameters, processing route and major end uses for New Zealand wool: 1. Woollen carpets, 2. Semi-worsted carpets, 3. Hand-knotted carpets, 4. Worsted woven upholstery, 5. Woollen woven blankets, 6. Non-woven duvets, futons, insulation, 7. Non-woven apparel, 8. Worsted handknitting yarn, 9. Woollen handknitting yam, 10. Shetland knitwear, 11. Lambswool knitwear, 12. Worsted knitwear, 13. Worsted woven outerwear, 14. Woollen woven outerwear, and 15. Worsted knitted underwear. Wool being "fit for purpose" is primarily determined by mean fibre diameter, which affects: the minimum count to which a yarn can be spun, softness and prickle (comfort in next-to-skin apparel), resilience in appearance and wear. Wool Technology and Sheep Breeding, Vol Wool Technology and Sheep Breeding, Vol. 47, 1999
8 Maddever and Cottle Product-Process Groups However, a complete technical description of a wool suitable for a particular product and processing route requires more parameters; for example, fibre length also critically determines usage. Only wool with an average length of about 60mm and over is suitable for combing and thus processing into worsted products. Lifestyle changes in the latter half of this century have seen the major end use of New Zealand wool shift from heavy apparel to carpets and knitwear. Traditional uses, such as lustrous worsted suiting, serge, woollen tweeds and flannel yarns, have declined and the product mix is constantly changing. Many developments underway at WRONZ are likely to further shift usage; e.g. non-woven and micron shift technologies. Price and Product Processing Groups The ease of processing and value of end product determine price. Therefore price differentials vary with the type of wool or product-processing group. The fibre diameter grouping format of Tables 1 and 2 clearly shows the non-linear nature of wool price premiums. For example, for a particular wool within the strong crossbred (>37 mm) group, the premium for diameter appears to provide little incentive to grow finer wool (in fact bulk appears to be the principal determinant of price in this micron group). However a large 5 mm reduction for a 40 rnm flock traditionally used in carpet blends would place the wool in the 32 rnm -37 mm micron group (Table 1). Here the premium for diameter is five times greater, as the wool is now available for a number of different, higher premium product-process groups such as worsted woven outwear (Fig. 1). This non-linear behaviour should be taken into account when designing breeding strategies. The breakdown into product-processing groups provides the insight that wools that are close to the boundaries of two groups may be used in either. There are two possible outcomes: 1. a parcel of wool could attract a premium for diversity of use, or 2. the parcel of wool may be discounted because it fails to clearly fit into one group Breeding and Product-Process Developments Given the non-linear nature of price premiums, the choice of direction for a breeding strategy from a particular starting position and a desire to maximise returns over a number of years, becomes more complex. Goddard (1983) addressed the issue of profit being a continuous non-linear function of traits where the relative economic value (REV) of a trait is not constant but changes with the population mean. In this situation a linear selection index is still optimal provided the differentials of price premiums Wool Technology and Sheep Breeding, Vol47 Wool 1999 Technology and Sheep Breeding, Vol. 47, 1999
9 45 Product-process groups and wool price. Denis Maddever and D. Cottle 45 are used at the current average value. But differentials are not defined at discontinuities and we hypothesise that trait price premiums are both non-linear and discontinuous at the boundaries of product-process groups (Fig. 1). Fig. 1. Shifting a Romney flock into a new product-process group (stylised, not based on price data) Pn Bulk The mathematical procedures involved in index calculations using REVS, allow a prediction of how the traits in a flock are expected to change following selection (Cottle and Maddever 1988). Thus it can be predicted where the flock will be in terms of the product-process group space in future. If it is predicted that the flock will approach a discontinuous non-linear price area, a breeder could head towards a longer term desired position that may be different to the short term goal, possibly by using genetic input from other breeds, ie. crossbreeding. Cottle (1994) showed that changing a selection index every year by following the wool market is inefficient and suggested using longer term average median prices to determine REVS. However breeders cannot afford to miss permanent changes that have occurred in product or process development that will have long term effects on price premiums. Wool Technology and Sheep Breeding, Vol Wool Technology and Sheep Breeding, Vol. 47, 1999
10 Maddever and Cottle Product-Process Groups Conclusion The use of constant, average values for wool parameters to determine breeding objectives has problems. When selling wool, the return is dependent on the current market, the wool's value in the process of making product and the end-use and markets it enters. While the prices being achieved in the current market are readily available, prediction of future wool price is dependent on likely changes to the processes and products involved. References Angel C. Beare S and Zwart T (1989) Product Characteristics and Arbitrage in the Australian and New Zealand Wool Markets. 33"1 Annual Conf. Aus Agr Economics Soc. Lincoln College, Christchurch, New Zealand. Carnaby G.A.; Stanley-Boden I.P.; Maddever D.C and Ford A.M. (1988). Mathematical concepts and methods in the industrial utilisation of the N.Z. wool clip, Journal of the Textile Institute, 79, Cottle, D.J. (1994) Wool prices and sheep breeding objectives - a historical perspective. Aust. J. Agric. Res. 45, Cottle D J and Maddever D C (1988). Optirnisation of returns in sheep breeding programmes based on objective measurement. In Wool Research Organisation of New Zealand special publication Volume 6. (Eds. G A Carnaby, E J Wood and L F Story) pp Wool Research Organisation of New Zealand, Christchurch. Fine Wool Review. Issue 4.15, July 10,1998 Goddard M.E. (1983) Selection indices for non-linear profit functions Theol: Appl. Genet. 64, Maddever D.C; Carnaby G.A; Ross. D.A (1991). Relative economic values of wool processing parameters. Proceedings of the NZ Society of Animal Production 51, Maddever, D C. Ford, A.M Bond, A.J. and Carnaby G.A.. (1984) Computer Blends - IV, Application to auction purchase strategies. WRONZ Comrnun. No.C95. New Zealand Wool Group Statistical Handbook - yearly publication Stanley-Boden I P Carnaby G.A; Ross. D.A (1986) An Analysis of the Relative Prices paid for New Zealand Wools. WRONZ Communication C100. Wools of New Zealand (1997) The New Zealand Wool Industry Manual p.102. New Zealand Wool Group (1998) Fine Wool Review, Issue 4.15, July 10. New Zealand Wool Group (1998) Wool Market Review, Issue 11.25, July 24. Wool Technology and Sheep Breeding, Vol47 Wool 1999 Technology and Sheep Breeding, Vol. 47, 1999
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