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5 The U.S. Wool Industry T he United States was the worldâs fifth largest woolâproducing nation in the 1940s. At the time, wool was considered to be the primary product of sheep production with lamb and mutton as byproducts of wool production. As the fortunes of the U.S. sheep industry declined over the years, so did the relative return to wool production. As a consequence, sheep producers and researchers have turned their attention to improving lamb and mutton production. Today, the United States accounts for < 1 percent of the worldâs wool production (Anderson et al., 2007). This chap- ter reviews the current status of the U.S. wool industry, with a particular focus on the challenges and future opportunities facing the industry. After reviewing the production, marketing, use, pricing, trade, and government policies related to wool, the chapter concludes by offering some insight on the future course of the industry. WOOL PRODUCTION The production of wool is a continuous, year-round process influenced by a large number of factors, including genetics, nutritional status, lactation, and other stress factors. The majority of U.S. sheep are shorn in the late winter and early spring months each year, although some producers shear in the fall. In the western range states, producers normally shear prior to the onset of the lambing season. Exceptions include many producers that lamb on the range in the fall or winter where climate risks result in shearing at or close to lamb weaning time in the spring. Some range producers that lamb in the winter in sheds shear prior to lambing. Another source of wool is 247
248 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES from feeder lambs. Lamb feeders in higher rainfall climates shear lambs to be feedlot finished, and also do so in regions with hot summer periods when the lambs enter the feedlots. An estimated 70 percent of the lambs finished in feedlots are shorn (McDonnell, personal communication, 2007). In 2006, the 14 western range and intermountain states accounted for 72 percent of sheep and lamb inventories but produced 77 percent of the U.S. wool clip and received 88 percent of the income from wool sales (USDA, 2007). The production cost and return budgets presented in Chap- ter 2 (Tables 2-3 and 2-4), for example, show that wool provided 14.5 per- cent of the income in Nevada public land range sheep production systems in 2006 and < 2 percent of the income in a 50âewe farm flock operation, barely covering shearing costs. A frequent debate in the U.S. sheep industry is whether wool is a liability or an important economic component of sheep production that is often neglected. Wool may be a liability to sheep produc- ers in one of three situations: â¢ High-rainfall production areas. Wool breeds of sheep are not well adapted to high rainfall conditions. For this reason, there is growing inter- est in the hair breeds of sheep in the subtropical regions of southeastern states. â¢ Farm flock production systems that emphasize lamb production. These operations generally utilize medium wool breeds or crossbreds that produce lowerâquality fleeces that often do not generate enough income to pay for shearing costs. â¢ Remoteness of wool markets. In this case, producers often have difficulty finding qualified shearers and market outlets for wool, providing some incentive to shift to hair breeds. Wool is an important component of sheep production systems in other situations: â¢ Range sheep production systems where arid rangelands limit the po- tential for increased lamb production. The best adapted range maternal ewe breeds all include some Merino genetics in their origin, from 100 percent in the Rambouillet and Merino to 75 percent in the Targhee and 50 percent in the Columbia. These breeds are all good wool producers. â¢ Marketing of wool versus marketing of meat and milk products. Because wool is an easily stored commodity, producers can delay the mar- keting of wool, but must sell their meat and milk products more quickly. Some producers store their wool for a year or more for financial or market considerations. â¢ Remoteness of lamb markets. The distance of their continent from major world lamb markets together with the storability of wool are pri-
THE U.S. WOOL INDUSTRY 249 mary reasons that Australian sheep producers historically have emphasized wool production and have become the dominant suppliers to world wool markets. â¢ Availability of niche markets. Some producers, particularly those with smaller flocks, have become specialty producers of wools, merchandis- ing to hand spinners and weavers. These may be longer and coarser wools for easier spinning or unique colored wools. With aggressive marketing strategies, these producers may earn from $100 to $150 in wool income per sheep in the flock. WOOL MARKETING Wool producers use one of three primary market preparation methods at shearing (original bag, bellies out and the fleeces not tied individually, and table skirted and classed), and one of four primary sales mechanisms (wool warehouses, wool cooperatives, wool pools, and private treaties). Worsted and Woolen Systems Worsted and woolen are the two basic systems used to process wool from the clean, scoured state through to yarn. The wools flowing through each system are, thus, determined by their characteristics. The worsted system utilizes longer staple and finer grades of wool for higherâquality cloth and finished fabrics. Worsted yarn is spun from fibers that have been carded and combed, resulting in relatively parallel fibers and a smooth yarn. The woolen system utilizes coarser grades of wool for yarn production that ranges in end uses from heavier fabrics for outerwear to drapes, upholstery, and carpets. Woolen yarns are spun from fibers that have been carded but not combed. As a result, the fibers are randomly arranged, yielding a rela- tively rough yarn. Other wools may be used for felt, insulation, batting, and as adsorbents and filters (ASI, 2002). The physical characteristics of wool as sold by producers are deter- mined by several objective measurements determined on full-length staples removed from random positions in the bale. These characteristics include fiber diameter, variability of fiber diameter, clean wool yield, staple length, staple strength, quantity and type of vegetable matter, and number of black fibers present. Objective measurements are obtained from core samples of bales/sale-lots of wool and determined by internationally approved machine and laboratory analyses. Subjective measurements may include color or stains, condition of staple tips, crimp, and style or handle.
250 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Fiber Diameter All international wool markets describe fiber diameter in microns, with superfine wool as low as 14â17 microns up to coarser wool from 27â35 mi- crons. Staple wools < 26 microns are generally used in the worsted system, with quality of fabric increasing in the lower micron ranges. Variability of fiber diameter is important both within a fiber and within a fleece. As the fiber diameter decreases, market value generally increases. Premiums often are paid for wool with low average fiber diameter and low variability of fiber diameter. Yield Yield is the percentage of clean wool in a grease wool sample, usually adjusted to 12 percent moisture, 1.5 percent alcohol extractives (oil), and 0.5 percent mineral content. The wool trade often refers to this situation as âclean wool fibers presentâ (CWFP). Yield in the U.S. wool clip may vary from 40 to 70 percent. Fleece density, or number of fibers per area of skin, and staple length are the principal genetic factors influencing yield. Yield also can be affected by management practices, such as where the animals are managed (pasture, range, croplands, drylot), moisture content of fleece at shearing, and cleanliness of shearing area. Clean wool yield can have a major influence on grease wool market price. A wool clip with a 60 percent yield has 50 percent more clean wool than a clip with a 40 percent yield. Staple Length Length is important to both yield and the system in which the fiber will be used. For example, finer wools < 22 microns must be â¥ 70-mm staple for combing and spinning to yarn in the worsted system. Coarser wools from 23 to 26 microns must have a minimum 76-mm staple length. Because wool grows in length every day, disease and/or nutritional stress may cause weaker (tender) fibers or breaks in the staple length and decrease its use and value. Position of the break in the staple is also critical to determining staple length. Another concern regarding staple length is second cuts in the shearing process. Shearers may miss cutting part of the staple and then cut a second time to present a smooth appearance when finished. Second cuts, if left in the staple length fleece, are considered a contaminant. Staple strength is critical in processing wools to finished yarns and fabrics, and measurement of strength is becoming a standard objective measurement for international wool marketing. Staple strength is inherited and can also be affected by nutrition, animal health, and other management practices.
THE U.S. WOOL INDUSTRY 251 Vegetable Matter Contaminants such as dirt and oils can be washed out of raw wool in the scouring process. However, vegetable matter, such as burrs and stems, generally cling to the wool fibers and must be removed during mechanical processing (carding and combing). Increasing levels of vegetable matter reduce clean wool yield and increase the cost of processing. Other contami- nants of concern include polypropylene twine, usually from hay baler twine that is very difficult to remove from the fleece; use of nonscourable branding paint (scourable paints are readily available); and black fibers and kemp or medullated fibers in a white fleece. Wool Market Preparation Methods Used by Growers Wool is generally bagged for market in one of three different methods: (1) original bag (OB) method in which bellies, stained wool, and other inferior fleece portions are not removed from the fleece and no table skirt- ing occurs; (2) bellies out and fleeces not tied individually (BOU) method in which some producers may do some fleece skirting to remove short and more contaminated fleeces but no table skirting occurs; and (3) table skirted and classed (TSC) method, which is the recommended method for inter- national and premium domestic wool markets. In the TSC method, bellies typically are removed from the fleece by the shearer and the woolâhandling crew removes most of the manure tags and urineâstained wool as it is shorn. The fleece is then thrown open on a slatted table to allow skirting to remove any vegetable matter, stained wool, second cuts, and shorter or off-grade parts of the fleeceânormally around the head and lower parts of the leg area of the fleece. A qualified classer then estimates fiber diameter, staple length, and strength of the fleece to determine the grade of the fleece to sort into separate bins. Short (less than staple) fleeces and tender fleeces generally are packaged separately. When a sheep is properly shorn, the fleece can be laid out on a table or floor and be seen as one piece. Skirting is the process of removing from fleeces the stained or inferior wool that grows on the belly and legs of the sheep (Lupton et al., 1992). Table skirting is simply placing the fleece on a table and finishing the skirting process. Classing is the preliminary sorting of the fleece according to its estimated physical properties. Australia is the largest producer of wool and sets the international stan- dard in the marketing of wools through preparation and class. In Australia, most wool is skirted and then subjectively classed by spinning quality num- ber (fiber diameter or fineness range), staple length, color, condition, style, and soundness. Classers produce as few lines as possible from a wool clip while maintaining uniformity within a line and eliminating contamination
252 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES TABLE 5-1â Percentage of Wool Prepared by Growers for Sale to Major Wool Warehouses Using One of the Three Major Preparation Methods, 2007 Wool Clip Market Preparation Method (%) Market OB BOU TSC Roswell Wool Co., Roswell, NM 5â7 60â65* 30â35 Sonora Wool & Mohair, Co., Sonora, TX 10â15 75* 10â15 Eden Wool & Mohair Co., Eden, TX 15â20 75* 5â10 Producers Marketing Cooperative, Inc. (PMCI), Mertzon, TX 10 60* 30 Utah Wool Marketing Cooperative, Tooele, UT 10 40 50 Center of the Nation Wool, Inc., Belle Fourche, SD 15 45 40 *Several warehouses reported that, even though the BOU wool is not TSC, an increasing number of producers are doing some sorting of their BOU wool on the basis of grade, staple length, level of contaminants, and/or color. Source: Survey of major warehouses by authors. of the clip with stained, pigmented fibers and all foreign material (Lupton et al., 1996). Subsequently, most lots are objectively measured (prior to sale) for clean yield, vegetable matter content, average fiber diameter (and vari- ability), staple length, staple strength, and color (Lupton et al., 1989). Most wool in the United States continues to be sold as OB wool (bagged without any further processing) (Table 5-1). A recent telephone survey of major woolâmarketing warehouses in the western states by the authors indi- cates some trend toward further preparation of wools by producers. The six warehouses surveyed merchandise approximately 50 percent of the wool produced in the western states (Table 5-1). The survey suggests that grow- ers increasingly recognize the importance of wool preparation for market. Producers Marketing Cooperative, Inc. (PMCI), a growerâowned marketing cooperative, handles approximately 20 percent of the Texas wool clip, with approximately one third of their wool from growers that are owner/mem- bers of the co-op. All owner/member wool clips are TSC by co-op staff and normally sell at a 15 percent to 25 percent premium. Warehouse managers in the survey agree that the highestâselling wool clips are those that have been using TSC for several years, establishing predictable reputation clips. With the 2007 wool clip selling at near-record prices, TSC has been an important method of preparation for growers of better wool clips. The warehouse managers also indicate that 20â30 percent of the OB Roswell Wool Co., Roswell, NM; Sonora Wool & Mohair, Co., Sonora, TX; Eden Wool & Mohair Co., Eden, TX; Producers Marketing Cooperative, Inc. (PMCI), Mertzon, TX; Utah Wool Marketing Cooperative, Tooele, UT; Center of the Nation Wool, Inc., Belle Fourche, SD.
THE U.S. WOOL INDUSTRY 253 and BOU wool sold through their warehouses is purchased by a major U.S. wool buyer and moved to its private warehouse for TSC and then merchan- dised to major U.S. and international wool market outlets. This observation suggests that producers not preparing their wool clip using TSC are selling at a substantial discount, since buyers clearly expect a costâplusâprofit return on investment for the further processing. Wool Marketing Mechanisms In the United States, wool is generally marketed through one of four different marketing mechanisms: (1) warehouse system, (2) marketing cooperatives, (3) pools, and (4) private treaties. Sales options within each mechanism have become fewer with the decline in sheep numbers. The primary objective of all four marketing mechanisms is to provide wool buyers adequate volumes of wool that can be purchased with confidence that their uniformity is accurately represented. All TSC and most BOU wool sold in the United States is core tested with the results available to buyers. Most buyers know the specifications of their orders for wool and are not interested in purchasing wools that do not meet their requirements. The importance of meeting international standards to realize potential market values has increased as exports of U.S. wool have grown. Wool Warehouse System Major U.S. woolâproducing regions have access to one or more com- mercial wool warehouses. Growers consign their wool to the warehouse that has the major lines or classes within a clip core tested for the previ- ously described objective measurements. Warehouses may then sell their wool consignments by either (1) sealed bids from and/or direct negotiations with buyers or (2) public auctions with adequate volume to attract major national and international buyers. Reputation wool clips may be sold sepa- rately within TSC grades. Smaller wool clips may be combined with other clips to achieve adequate volume within grades to attract buyers. Growers may instruct warehouse managers to obtain predetermined minimum bids as their agents, or they may trust the manager to get the best available price for their wool. Wool Marketing Cooperatives Many areas of the United States are too remote from wool warehouses and have inadequate volume to attract a commercial warehouse. The larg- est woolâmarketing cooperative is Mid States Wool Growers Cooperative with assembly warehouses at its headquarters in Canal Winchester, Ohio,
254 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES and in Kansas City, Missouri. Mid States also has assembly stations in sev- eral locations throughout the Midwest and the East for grower delivery to minimize freight costs for smaller clips. Wool delivered from each grower to their central warehouses is then sorted into grades and wool types and pooled with other clips to obtain adequate volumes in the various grades and types to attract buyers. Mid States provides an important service to farm flock producers remote from traditional wool markets, and provides an assembly service for buyers. Although California Wool Growers Mar- keting Cooperative is the primary wool market outlet for California grow- ers, the cooperative has contracted with Roswell Wool to sell its wool to obtain greater market access. Producersâ Marketing Coop., Inc. (PMCI) in Mertzon, Texas, may be a model for future cooperatives of growers that produce higher-quality wool in the major wool producing areas. Wool Pools Growers in several regions, particularly in the Northwest and North Central states, have used a variation of the cooperative system called wool pools. Montana, for example, continues to operate a number of such pools. A group of growers that produce similar sheep and wool will combine their clips and offer them for sale at a central shipping point. The more progres- sive wool pools provide objective measurement information on the wool offered for sale. The pools provide an opportunity for smaller growers to pool with other growers with similar wool in 11,340- to 13,608-kg truck- load lots. Wool pool members may jointly own a wool baler and may use a common shearing crew. Private Treaty Direct sales were a traditional method growers utilized to sell their wool clip. Growers with larger reputation clips would contact buyers and negotiate a sale price. Although some private treaty sales continue in the major woolâproducing states, this sale method has declined for at least three reasons: (1) the use of objective measurements, (2) recognition by growers that buyers were generally more knowledgeable of the wool market than growers, and (3) the desire of major buyers to bid on larger quantities assembled at a central location with known specifications and objective measurements. There continue to be reputable buyers in the North Central and eastern states that provide a market outlet for farm flock producers and lamb feeders. Producers with small flocks that produce lowerâquality wool may give the wool to the shearer as partial payment for shearing costs. Most niche market wools are merchandised by growers as individual fleeces or smaller amounts or as natural handâspun yarns.
THE U.S. WOOL INDUSTRY 255 WOOL PROCESSING Once raw wool is purchased, several steps are required before it is pro- cessed into end products. As stated previously, most fabrics for clothing are produced from finer wools (< 26 microns) in the worsted system. Carpets, rugs, heavier blankets, and some upholstery products are generally produced from longer staple, coarser wools primarily using the woolen system; how- ever, an increasing percentage of carpet and blanket yarns are produced on a modified or semiworsted system. With the exception of a limited number of producers of blankets, the woolen system is almost nonexistent in the United States. China, India, Turkey, and, to a lesser extent, some Eastern European nations, now dominate carpet, rug, and heavier blanket production from the woolen system. Since the worsted system is the primary use of wool in the U.S. textile industry, brief description of the steps from raw wool to retail products is appropriate. A more detailed description is presented in the SID Sheep Production Handbook (ASI, 2002). â¢ Scouring. Scouring is the removal of impurities from grease wool using water, detergent, and sometimes a mild alkali. Lanolin is the primary grease base in wool, and it is removed as a merchantable byproduct. Water and other materials, such as dirt and vegetable matter, that are removed in the scouring process can be treated in conventional sewage processes. â¢ Carbonizing. Wool clips contaminated with excessive and hard- erâtoâremove vegetable matter, such as burrs and thorny branch segments, are carbonized using an aqueous sulfuric acid treatment to carbonize the cellulosic vegetable matter and followed by heating to convert the defec- tive material into carbon. The carbon is then crushed and shaken from the wool. The acid base is then neutralized and the wool rescoured to complete the process. Carbonizing is expensive, often resulting in shorter and weaker wool fibers. In addition, the wastewater must be treated separately to meet environmental quality requirements. No specific data are available, but only a minor portion of the U.S. wool clip requires carbonizing. The TSC process should remove these types of vegetable matter contaminants from the fleece. â¢ Drying. The wet scoured wool is then dried. The wool is first me- chanically squeezed, then deposited on conveyers at uniform depths to pass through continuous flow heated air dryers. â¢ Carding. Carding disentangles and orients the fibers uniformly for further processing, and is achieved by passing the wool through cylinders and rollers covered with short wires varying from 500 to 2000 wires per square centimeter, depending on the type of wool and end-use objectives. â¢ Combing. Combing removes vegetable matter and short and tangled fibers and orients the longer fibers in a more or less linear configuration. The fibers are combined to form a continuous combed rope or sliver that is then
256 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES fed into rollers for further combing, and then coiled into cans or bundles for delivery. â¢ Top-finishing. Further blending of the combed fibers into a uniform weight and thickness per unit of length and winding into a ball known as top is accomplished by combining (drafting) several combed slivers that are drawn (drafted) together to provide more uniform material. For some yarns destined to be woven into multicolored fabric patterns, dyeing may occur at the top-finishing stage. â¢ Roving, spinning, winding, and twisting. Roving, a process similar to spinning, reduces the top to a more uniform size or thickness prior to spinning. Spinning is the final drawing to the desired yarn fiber count or thickness and includes a predetermined amount of twist and delivery of the yarn to an appropriate package. Wrapping two or more yarns together to form a multiply yarn is called twisting or plying. â¢ Weaving. Weaving interlaces two sets of yarn to form fabric, with warp yarns running lengthwise and weft yarns crosswise. A modern loom is computerized to control multiple functions to including speed, specific weave, and color functions. The woven cloth moves to a roller synchronized with warp speed in a continuous operation and holds the cloth to a speci- fied width. â¢ Knitting. Knitting interlaces yarn in a series of connected loops by needles to control a fabric. Specialty yarns may be produced for hand knit- ting, whereas mechanized commercial knitting machines are very rapid and require stronger yarns. Warp knitting machines produce flat fabric similar to woven cloth, while specialized machines may knit socks, gloves, and fully fashioned garment patterns. â¢ Finishing. Technically, everything that happens to wool fabric after leaving the loom until it is ready for the cutter is regarded as finishing. This may include inspecting for defects, scouring, dyeing, and other chemical treatments to increase flame resistance, reduce shrinkage, improve breath- ability, and increase comfort. The finished cloth is then ready for textile manufacturers to prepare finished products for consumers. â¢ Wool felts. Not covered in the above process is the production of wool felt textiles. Felt is characterized by the densely matted fibers of the wool used. Felts are produced by the combined actions of mechanical work, chemical reactions, moisture, and heat. Although current felt production records are not available, U.S. consumption of wool fibers in felts in 1986 was nearly 4 million kilograms in terms of clean wool. Current Status of U.S. Wool Processing Industry The wool processing industry has shrunk significantly in the United States in the last 20 years and is discussed in depth in the following section
THE U.S. WOOL INDUSTRY 257 on wool demand. The majority of wool processing in the United States is located in North Carolina and South Carolina and other southeastern U.S. states along the eastern seaboard, and in the Northeast. The global shift in the textile industry is largely attributed to low wages in China, India, and other developing nations, but this shift is also due to rapid modernization of wool processing plants, particularly in China and India (WOOLNEWS. net, 2007). The surviving textile mills in the United States have largely modernized to utilize new technologies and tailor their products to specific consumer needs, such as the U.S. military (ASI, 2007a). Many of the steps in wool processing require chemicals and create byproducts that result in substantial expense to comply with environmental regulations, while environmental regulations are considerably less in China, India, and other developing nations. Other issues of concern to the U.S. wool processing industry include the removal of textile tariffs and quotas, and the claim that China has artificially kept its currency at a low value relative to the U.S. dollar. Another concern often mentioned is the decline in U.S. sheep and wool production. However, demand for wool apparel goods has increased in the United States in the last 10 years, and export of the U.S. wool clip has increased from traditional levels of approximately 33 to 70 percent of the wool clip in fiscal year 2007. In fact, China now consumes more U.S. raw wool than the domestic wool processing industry (ASI, 2007b). WOOL DEMAND Clean, graded, scoured wool is used primarily for processing into ap- parel and carpets. Wool used for carpets is mostly imported and is shorter, coarser, and less uniform than wool used for apparel. While some apparel wool is produced domestically, the majority (about 88 percent) is imported (ASI, 2007a). Apparel wool is used primarily for clothing such as tweeds, flannels, and knits for blankets. At the mill level, wool competes with a large number of both natural fibers, including cotton, flax, and silk, and synthetic fibers, such as nylon, rayon, acrylic, and polyester. However, wool can function in a complementary role with other fibers in the production of fiberâblend textile goods. The same is the case at the retail level. While wool textiles compete with other fiber textiles for the consumer dollar, wool complements the demand for other fiber textiles in many blended fiber textiles. Domestic Mill Demand The dominant fibers in textile processing are cotton and synthetic fi- bers. From 1995 through 2005, synthetic fibers accounted for an average of 69.9 percent of all fibers used by U.S. mills, with cotton accounting for
258 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 28.7 percent (USDA, 2006). Wool accounted for an average of only 0.6 percent, with flax and silk accounting for the remaining 0.8 percent. Since 2000, the U.S. domestic mill use of all fibers, including wool, has been in a general downward trend, reflecting the growing concentration of the textile industry in developing countries, where wages are relatively low compared to the United States (Figure 5-1). According to the National Council of Textile Organizations, more than 350 U.S. textile plants have closed since 1997 and the industry has lost nearly 200,000 jobs in the past five years (NCTO, 2007). Wool has experienced the largest percentage de- cline in mill use, falling by an annual average of nearly 11 percent between 1999 and 2005, compared to the 8 percent average annual decline in the mill use of cotton, the 6 percent decline in the use of flax and silk, and the 2 percent decline in the use of synthetic fibers over the same period (Figure 5-2). The decline in domestic mill use of wool began after World War II due to the reduction in use by military service personnel. Mill use of wool has also suffered from the continuing decline in sheep numbers, the marketing and promotion programs of the cotton industry designed to increase cotton demand at the mill level and at the retail level, and a shift in consumer tastes and preferences toward lighterâweight casual clothing. In addition, wool has competed with a growing number of other fibers 14 12 10 Million Tonnes 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Domestic Mill Use Net Imports Total Retail Demand FIGURE 5-1â U.S. fiber demand at the mill and retail levels, 1995 to 2005.a â aAll fibers including cotton, wool, synthetic fibers, flax, and silk. Fig 5-01.eps Source: Based on data in USDA (2006).
THE U.S. WOOL INDUSTRY 259 MILL COTTON MILL FLAX SILK 5500 200 180 5000 160 4500 140 120 4000 100 3500 80 3000 60 95 96 97 98 99 00 01 02 03 04 05 95 96 97 98 99 00 01 02 03 04 05 MILL MMF MILL WOOL 11200 160 11000 140 10800 120 10600 100 10400 80 10200 60 10000 40 9800 20 95 96 97 98 99 00 01 02 03 04 05 95 96 97 98 99 00 01 02 03 04 05 FIGURE 5-2â Mill use of cotton, flax and silk, synthetic fibers, and wool, 1995â2005. Units are 1,000 lb (1 lb = 0.4536 Fig 5-02.eps kg). Source: USDA (2006). in the production of textile goods over time. As of 2003, the most recent information reported by the USDA, noncellulosic fibers and cotton ac- counted for almost 92 percent of world textile fiber production (Capps and Williams, 2006). The share accounted for by noncellulosic fibers has risen since 1980 while the shares accounted for by wool, cotton, flax, and hemp have declined. The share of global textile production on a raw-fiber-equiva- lent basis accounted for by wool fell from a high of 5.7 percent in 1982 to a low of 2.3 percent in 2003. Perhaps more important than any other factor in the sharp decline of textile manufacturing in the United States, however, was the replacement of the Multi-Fiber Arrangement (MFA) with the World Trade Organiza- tion (WTO) Agreement on Textiles and Clothing (ATC) in 1995. Under the MFA, a large portion of textiles and clothing exports from developing
260 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES countries to the United States and other industrial countries was subject to quotas under a special regime outside normal GATT rules. On January 1, 1995, the international textiles and clothing trade began a process of funda- mental change under the ATC, as the industrial countries began eliminating their import quotas over a 10-year period that ended on January 1, 2005. As a consequence, U.S. imports of textile products have grown rapidly as raw fiber textile milling has increasingly shifted to China, India, Eastern Eu- rope, and other countries where labor costs are lower. According to Wilcox (2007), labor costs in textile manufacturing in these countries are as low as $1â$2 per hour compared to $15â$20 per hour in the major industrial na- tions. Fewer or less restrictive environmental regulations in these countries may also be a factor. Other traditional woolâprocessing regions, including Western Europe, Great Britain, and Australia, are grappling with similar declines in raw wool processing and increasing imports of wool textiles. There is growing concern in the U.S. textile industry, however, that the opening of the U.S. market to textile imports has facilitated extensive gov- ernment intervention by China and other developing country governments in their textile and apparel export sectors to set prices at artificially low lev- els (ATMI, 2003). Claims of anticompetitive actions by the Chinese include currency manipulation to subsidize exports, subsidization of nonprofitable state-owned textile and apparel manufacturers, export tax rebates, and loans by Chinaâs central banks to achieve a competitive advantage against foreign competition. The concern is that over the past 3 years these and other subsidies have led to an average 58 percent drop in the prices of Chinese textile exports where quotas have been removed. These concerns have motivated talks between the U.S. and Chinese governments with a resulting agreement in August 2007 to increase import limits for certain cotton, wool, synthetic fiber, silk blend, and other vegetable fiber textiles and textile products produced or manufactured in the Peopleâs Republic of China (USDC, 2007). The Retail Demand for Wool Textiles The total U.S. use of wool and all other fibers at the retail level is mea- sured by USDA as domestic mill use of the fibers plus the raw-fiber-equiva- lent of imported textiles. As at the mill level, the dominant fibers at the retail level are cotton and synthetic fibers. While the use of wool by U.S. mills has been declining, imports of wool textiles have been increasing (Figure 5-3). The growing imports of wool textiles have more than compensated for the decline in the domestic mill use, leading to an increase in the total retail consumption of wool in the United States. The growth in retail demand for wool textiles has been high enough in recent years to boost per capita demand for wool from 0.50 kg in 1999 to 0.63 kg in 2005 on a raw-fiber-
THE U.S. WOOL INDUSTRY 261 Total Retail Demand, Thousand Tonnes 250 0.7 0.6 Domestic Per Capita Demand, Kg Domestic Mill Use, Net Imports, and 200 0.5 150 0.4 0.3 100 0.2 50 0.1 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Domestic Mill Use Net Imports Total Retail Demand Per Capita Demand FIGURE 5-3â U.S. wool demand at the mill and retail levels, 1995â2005 Source: USDA (2006). Fig 5-03.eps equivalent basis (USDA, 2006). The trend has been the same for other fibers, with growing imports more than compensating for the declining domestic production of textiles, leading to increased total and per capita demand (see Figure 5-1). Between 1995 and 2005, the per capita usage of synthetic fiber textiles increased from 18.5 kg to 22.7 kg, while per capita usage of cotton textiles increased from 13.4 kg to 17.1 kg (USDA, 2006). Traditional wool apparel goods were heavier, more durable products worn primarily in colder climates and winter months and were not re- sponsive to changes in styles and fashion trends. They included menâs and womenâs suits, topcoats, and sweaters. The first major challenge to tradition came from the advent of synthetic fibers that were lower cost and more re- sponsive to changing fashion trends and consumer tastes, including âwash and wearâ convenience. Cotton and other natural fibers responded to this challenge more rapidly than wool. Similar shifts to synthetic fibers occurred within nonapparel products such as carpets, blankets, and upholstery due primarily to lower costs. As a result, wool consumption has become a small portion of the textile industry. Recent trends in the textile industry indicate that wool could develop a stronger market position in certain areas. Significantly lower production costs in China and India are resulting in retail apparel products including wool, wool blends with other natural fibers such as alpaca and cashmere, and even wool blends with synthetic fibers that are more cost competitive. Lighter-weight, finer wool apparel goods in menâs and womenâs wear are
262 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES increasing slightly in market share (Wilcox, 2007). Wilcox (2007) reported that in 2006, China produced 39 percent of the world supply of apparel goods, 80 percent from imported wool. It consumed 60 percent of this pro- duction internally, indicating that its emerging economy now consumes ap- proximately 24 percent of the worldâs apparel goods production. According to ASI (2007c), the U.S. military is the largest consumer of U.S. wool, due to congressional requirements that domestic products be used when available. The military is also a major contributor to wool research. Raw Wool Trade In general, the United States exports raw fibers, both natural and synthetic, and imports textiles, as well as some raw fibers, including wool. Germany was the leading destination for U.S. raw wool exports in 2002, a distinction achieved by China beginning in 2004 (Table 5-2). According to the American Wool Trust report to the U.S. Congress in January 2007, exports of U.S. greasy wool to China have increased from 1,054 metric tons (tonnes) in 2003â2004 to 1,446 tonnes in 2004â2005 to 2,713 tonnes in 2005â2006, a trend that is expected to continue (ASI, 2007c). German imports, on the other hand, dropped by nearly 30 percent over the same period. In 2005, the two countries together accounted for over 70 percent of U.S. wool exports. Other major U.S. wool export destinations include India, Belgium, and Mexico. China now purchases almost 50 percent of the world market supply of raw wool for finishing to textile products, plus utilizing all of its internal wool production. China produces 39 percent of the worldâs wool apparel products, up from approximately 20 percent in 2000, and is the dominant producer of machineâmanufactured wool carpet and rug products (Wilcox, 2007). Internal consumption of wool apparel products sold at retail in China is now 60 percent of their total production. As a consequence, the emerging Chinese economy is consuming 24 percent of the world wool ap- parel goods, almost triple the internal wool use duing 2000 (Wilcox, 2007). China is now also the largest sheepâproducing country in the world. A recent Australian Wool Innovation (AWI) raw wool market research report esti- mated Chinaâs wool production at 100,000 tonnes and raw wool imports at 400,000 tonnes (WOOLNEWS.net, 2007). The AWI also reported that major Australian wool buyers and processors are investing in joint ventures with Chinese manufacturing companies and that China is investing heavily in stateâofâtheâart new technology to modernize its textile industries. Wilcox (2007) suggested that while these transitions may be painful, the lowerâcost, higherâquality products produced in China, India, and other developing economies will likely result in wool apparel goods becoming more cost competitive with other fibers.
TABLE 5-2â U.S. Raw Wool Exports (Thousands of Pounds) by Country of Destination, Clean Yield, 2002â2005 Shorn Wool Unshorn Wool Carbonized Wool Country 2002 2003 2004 2005 2002 2003 2004 2005 2002 2003 2004 2005 Belgium 891.3 433.5 54.0 456.1 â â â â â â â â Canada 11.4 60.8 62.0 94.5 582.4 213.3 61.2 27.3 â â â 12.2 China, Mainland 1,136.7 2,417.3 2,855.7 2,209.0 â 246.9 1,101.6 2,864.6 â â 186.9 â France 137.2 â 22.4 42.0 27.5 40.8 â 236.2 â 1.8 â â Germany 2,714.6 3,868.8 1,847.7 1,961.6 â 137.2 65.1 713.9 â â â â Guatemala 6.3 23.1 16.0 14.9 â â 2.7 â â â â â Hong Kong 4.8 86.0 â â â â 26.7 1.7 â 17.3 3.6 7.3 India 394.8 1,333.1 629.0 414.4 â 67.7 157.7 290.1 11.1 130.4 â â Italy 313.4 233.9 238.9 41.3 35.4 â 408.2 1,247.5 â â â â Japan 0.3 29.5 8.1 4.5 â 22.8 â â â â â â Korea â 36.4 2.8 â â 5.1 44.1 9.6 â â â â Mexico 936.2 301.7 156.2 458.4 31.5 â 6.5 â 130.7 2.4 3.0 137.8 Poland 140.8 185.7 215.5 85.5 22.1 27.4 â â â â â â Portugal â â â â â â â â â â 1.6 13.2 Spain 166.9 â 1,665.3 â â â â â â â â â Turkey 24.9 â â â â â â â â â â â United Kingdom 72.3 42.2 28.1 4.5 300.0 428.1 259.5 461.8 â â 38.8 â Other 322.4 523.7 652.6 120.9 46.5 80.0 221.7 405.5 â 70.1 124.7 85.9 Total 7,274.3 9,575.7 8,454.3 5,907.4 1,045.4 1,269.3 2,355.0 6,258.2 141.8 221.9 358.7 256.4 Units are 1,000 lb (1 lb = 0.4536 kg). Note: â = No exports. Source: USDA (2006). 263
264 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Raw wool imports to the United States have traditionally been larger than U.S. exports, making the country a net raw wool importer. Nearly 80 percent of coarse U.S. raw wool imports (not-finer-than 46âs) came from New Zealand in 2005 (Table 5-3). Australia, on the other hand, accounted for 72 percent of the finer wool (48âs-and-finer) in 2005. Other major sources of U.S. coarse wool imports in 2005 included the United Kingdom (8 percent), Argentina (6 percent), and Australia (4 percent). Other major sources of U.S. fine raw wool imports in 2005 included Canada (10 percent), New Zealand (7 percent), and South Africa (5 percent). Research on the Demand for Wool and Competing Fibers Research on the demand for fibers has focused predominantly on cotton and synthetic fibers particularly at the mill level (e.g., Donald et al., 1963; Dudley, 1974; Stennis et al., 1983; Dickerson, 1999; Capps and Williams, 2006). A recent analysis of global cotton and fiber markets used a modified version of a multi-equation, econometric simulation model developed by the Cotton Economics Research Institute (CERI) at Texas Tech University (Pan and Mohanty, 2005) to study the own-price elasticities or price sensitivities of cotton and other fiber demands at the mill and retail levels across various countries (Capps and Williams, 2006). They found that the mill demand for cotton ranged from â0.14 in the United States and India to â0.74 in Egypt over the study period of 1976 to 2003. That is to say, given a 10 percent change in the price of cotton the quantity demanded of cotton for mill use ranges from 1.4 percent to 7.4 percent in the opposite direction. The U.S. cotton mill demand price elasticity was close to the elasticity estimate of â0.17 previously reported by Capps et al. (1997) but smaller than the â0.40 mill demand price elasticity reported by Murray et al. (2001) and lower than the â0.30 elasticity reported by Lowenstein (1952). Shui et al. (1993) reported a much higher U.S. cotton mill demand price elasticity of â0.60. In addition, the Capps and Williams (2006) study found that for all countries except the United States, the estimated cross-price elasticities for polyester in the cotton mill demand equations (i.e., the responsiveness of cotton demand to a change in the price of polyester) were positive and smaller in magnitude than the corresponding own-price elasticities for cot- ton. The implication is that polyester and cotton are substitutes in foreign cotton mill use. With respect to the U.S. cotton mill demand, however, the polyester cross-price elasticity was estimated to be negative and larger in magnitude than the own-price elasticity, implying that cotton and polyester are complements in U.S. cotton mill use. The finding of complementarity between cotton and polyester in U.S. cotton textile milling is consistent with the conclusions of a number of other studies, including Capps et al. (1997) and Murray et al. (2001). In the latter study, the elasticity of cotton mill
TABLE 5-3â U.S. Raw Wool Imports (Thousands of Pounds) by Country of Origin, Clean Yield, 2002â2005 Not-finer-than 46âs 48âs-and-finer Country 2002 2003 2004 2005 2002 2003 2004 2005 Argentina 363.2 632.1 454.5 679.8 19.2 0.5 â 61.0 Australia 439.3 155.3 694.7 430.6 8,126.0 3,601.4 4,248.0 4,499.7 Belgium 43.9 â 16.7 â â â â 33.3 Brazil â â â â 52.8 74.5 33.1 â Canada 117.1 72.1 43.0 82.0 840.6 350.7 638.8 593.8 Chile â â â â â â â â France â â â â â â â â Italy 0.1 â â â 20.9 â 25.0 1.4 Mexico 34.8 279.1 117.0 16.6 97.6 69.7 76.8 69.6 New Zealand 10,277.5 11,757.1 12,137.6 9,668.6 498.7 377.8 403.9 415.3 South Africa 54.0 62.2 202.8 224.8 528.5 377.8 506.7 285.0 Spain 11.8 â â â 39.6 â â â Switzerland â 2.4 â â â 0.2 2.3 â United Kingdom 2,702.0 2,528.0 2,732.5 966.2 15.5 1.6 56.4 106.4 Uruguay â 41.9 â â 272.4 132.1 212.5 128.9 Other 115.4 219.1 55.7 111.4 13.8 0.1 0.6 25.4 Total 14,159.1 15,749.4 16,454.7 12,180.0 10,525.5 4,986.2 6,204.1 6,219.8 Units are 1,000 lb (1 lb = 0.4536 kg). Note: â = Not available Source: USDA (2006). 265
266 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES demand with respect to polyester price was found to be â0.13, somewhat lower than the estimate of â0.21 found by Capps and Williams (2006). Capps et al. (1997) estimated the polyester cross-price elasticity to be â0.5479. The intuition behind the notion of complementarity rests on the development of blended fabrics, at least in the United States, incorporating elements of synthetic fibers and cotton. For U.S. synthetic fiber mill demand, Capps and Williams (2006) found that the estimated own-price elasticity was â0.04 and the estimated cross- price elasticity with regard to cotton was â0.10. Because this study was the first to report estimates for U.S. synthetic fiber mill demand, there are no results from other studies with which to compare. However, the results are consistent with those found for U.S. cotton mill demand, providing some confidence that cotton and synthetic fibers are complements in mill use in this country. In other words, when prices for either or both cotton or syn- thetic fibers rise (fall) in the United States, less (more) of both cotton and synthetic fiber is demanded by U.S. mills. At the retail level of textile fiber markets, Capps and Williams (2006) found that demand for textiles across all countries, including the United States, is inelastic with respect to both the prices of textiles and income. In the United States, the own-price elasticities of cotton fiber textile demand and synthetic fiber textile demand were estimated to be â0.41 and â0.61, respectively. In foreign countries, the estimated own-price elasticities for all textiles ranged from as low as â0.07 in the EU-15 (the original 15 European Union countries) to as high as â0.52 in Pakistan. The estimated income elasticities ranged in magnitude from 0.02 in Taiwan to over 0.90 in Mexico and the United States. For the United States, the Capps and Williams study concluded that the demand for synthetic fiber textiles is slightly more in- come inelastic (0.60) than is the case for cotton fiber textiles (0.92). Given that the estimated income elasticities of textiles are positive and less than unity in magnitude across all countries, the implication is that consumers consider textile goods to be necessities rather than luxury goods regardless of where they live. Clements and Lan (2001) analyzed the pattern of world mill level de- mand for cotton, wool, and chemical (synthetic) fibers. A distinctive feature of their analysis was the use of the systemwide approach to model jointly the demand for the three fibers. Much of the previous research had rested on the use of single-equation demand functions. The benefit of the systems-wide approach is the ability to capture the demand interrelationships among the fibers in a theoretically satisfactory way. Using data for various OECD coun- tries for the periods 1974 and 1992, Clements and Lan (2001) estimated the (compensated) own-price elasticities to be â0.136 for cotton, â0.020 for wool, and â0.155 for chemical fibers. They found the world demand for each of the fibers is quite inelastic at the mill level. They also found the in-
THE U.S. WOOL INDUSTRY 267 come elasticities of the mill demand for cotton to be 0.803, 0.532 for wool, and 1.304 for chemical fibers. The implication is that consumers consider wool and cotton to be necessities, whereas chemical or synthetic fibers are viewed as luxuries. Finally, they estimated the cross-price elasticities to be in the range of 0.001 and 0.006 between cotton and wool, in the range of 0.135 and 0.152 between cotton and synthetic fibers, and in the range of 0.003 and 0.014 between wool and synthetic fibers. Hence, all three fibers are viewed as weak substitutes at the mill level. Except for the Clements and Lan (2001) study, little other research has focused on estimating the own-price, cross-price, and income elasticities for wool, either domestically or globally. This information is critical to ensure a proper picture of the demand situation for wool in the United States. Demand analyses involving wool, cotton, and synthetic fiber are necessary both at the mill level and at the retail level. Wool Market Prices and Pricing Wool and lamb meat are the key products of sheep production and by and large are complementary products. According to Babula (1996), increased domestic lamb quantities historically have led to increased wool quantity and lower domestic wool prices as more lambs are shorn. Likewise, increased domestic lamb prices historically have led to decreased quanti- ties of and higher prices for U.S.âproduced wool as fewer ewe lambs are slaughtered and shorn. Price-Determining Factors Wool market pricing is based on the physical characteristics of wool as determined by the objective measurements discussed earlier, including fiber diameter, variability of fiber diameter, clean wool yield, staple length, staple strength, quantity and type of vegetable matter, and number of black fibers present. The price for wool received by growers is also affected by the extent of grower preparation of wool for market and the method of sale. Wool market price quotes are on a clean wool basis, with fiber diameter, staple length, and staple strength being the primary factors affecting market price of clean wool. Other factors such as vegetable matter content and other contaminants can result in price discounts. World wool market prices are primarily established by Australian mar- ket prices due to their dominance in world wool markets. Australia produces approximately 50 percent of the worldâs wool sold at auction. Although Australian Wool Exchange (AWEX) weekly wool market price quotes are based on AUS cents/kg for clean wool across micron grades, money trans- fers by wool buyers are usually based on U.S. dollars. The exchange rate
268 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES of the U.S. and Australian dollars, therefore, can have a major impact on world market prices and sales. Wool prices in most countries are based on Australian export prices as adjusted for wool type, quality standards for preparation and marketing, adequate buyer network and wool supplies for a competitive market, and distance (freight costs) to processors and end users (Wilcox, 2007). U.S. wools have historically sold at substantial discounts to Australian wools of comparable micron and quality for various reasons, including su- perior Australian marketing standards, uniformity of larger volumes of wool within grades and types, and the fact that Australia is closer to the major Asian processors of wool than the United States. The most recent complete annual data on comparative wool prices are for 2005 and indicate that U.S. wool prices range from a little over 60 percent to nearly 75 percent of im- ported Australian wool prices depending on the micron grade (Table 5-4). In addition to those mentioned above, an additional factor contributing to the differences in U.S. and Australian wool prices is the difference in the marketing windows in the two countries. The largest volume wool sales in Australia are normally in the first 3 months of the year, declining in volume from mid-April through the end of formal sales in August. Prices tend to decline as volume declines and as buyers fill their orders. The peak sale months for wool in the United States are from mid-April through mid-June when prices normally decline in Australia and some buyers may have filled their orders. Market trends in 2007 were an exception to the normal market expectations. As the market year progressed in Australia, both number of sheep shorn and fleece weights clearly were lower than in previous years and the demand for quality wools was solid. As a result, market prices increased almost every week from early January through June 1, 2007. Prices in the U.S. wool market in mid-2007, with most wool sold from April through June, were estimated by U.S. markets to be 25 to 35 percent higher than the previous year, suggesting that U.S. market prices were no more than 10 TABLE 5-4â Average Prices (U.S.$/Kg) of U.S. Wool and Imported Australian Wool, Cleaned and Delivered to Charleston, SC, by Micron Grade, 2005 Micron Grade Country 19 21 23 25 Total Clip Ave. Australia â 7.01 â 5.87 â 5.60 â 4.98 5.45 United States â 5.03 â 4.32 â 3.88 â 3.11 3.75 U.S. as a % of Australian price â 71.6 â 73.7 â 69.2 â 62.3 68.4 Source: Based on data from McDonnell (personal communication).
THE U.S. WOOL INDUSTRY 269 to 15 percent lower than Australian prices at that time. World wool market analysts predict that wool prices will likely remain at their current near record highs for the next 2 to 3 years due to reduced raw wool supplies, with the only concern being that continued price increases may encour- age substitution of other lower-cost fibers for wool in apparel garments (WOOLNEWS.net, 2007). The Effect of Market Preparation Method on Wool Prices As mentioned earlier, U.S. wool producers have lagged those in other major producing countries in both preparing their wools for sale and in classing their wool in accordance with international standards. Given that Australian wool prices are usually higher than U.S. wool prices (for similar types) as shown by Hager (2003) and given that some Australian wool is quite similar to some U.S. wool, an important question for U.S. wool pro- ducers is whether these price differences are due to differences in the extent of preparation of wool for marketing. Kott (1997) contended that maximiz- ing the returns to wool production requires producers not only to grow the wool but also to harvest and package the wool properly and then market it properly. If that is the case, then the question is how much of a premium, if any, is received for skirted and classed wools, as typically sold by Australian producers, as compared to OB wools as typically sold by U.S. producers. Lupton et al. (1989) conducted some of the earliest research on the effects of skirting and classing on wool prices and concluded that skirting could be profitable when applied to fine-wool fleeces when prices are at high levels. They also concluded that the financial incentive to skirt wool fleeces is reduced as wool prices decrease, as skirting costs increase, and when wool is most coarse. Lupton et al. (1996) compared clean prices of skirted and classed wool to OB wool over a 4-year period ending in 1996 using Texas Agricultural Experiment Station sheep flocks in San Angelo, Texas. They found that skirted and classed wool prices were higher by 6.6 percent to 26.9 percent per year over OB wool (equivalent to $0.19 to $0.42 per kilogram). The potential to add value to wool by skirting and classing is attributed to the fact that less sorting of skirted and classed wool is required when the wool clip reaches the textile mills. The resulting labor cost savings then could be passed back to producers in the form of higher prices. Pfeiffer and Lupton (1999), however, found that skirted and classed wool may not produce more net income to producers than selling wool in OB form. Another factor to be considered is the way wool is presented to buyers. One experiment conducted by Lupton et al. (1993) presented buy- ers with subjective measurements for all wool lots. Objective measurements were available on only half the lots. The wool lots that were accompanied by objective measurements consistently received higher prices.
270 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Hedonic Wool Price Analysis Given the less than conclusive results of past research and the impor- tance of the issue to the profitability of wool production, a hedonic price model was developed (Hager, 2003; Anderson et al., 2007) to test the hypothesis that skirting and classing wool generally produce higher prices compared to OB wool. The model measures the premiums/discounts among different levels of preparation and wool types, controlling for seasonality, year, region, average fiber diameter (AFD), and grease weight (GW, lot size). The data for the analysis came from a comprehensive survey sent to wool warehouses and pool sales across the United States. The data included 8,589 observations on skirted and classed as well as OB wool sales over a 10-year period starting in January 1993 and ending in January 2002. Clean wool prices were gathered, noting region, season (month of year), year, wool preparation, wool type, AFD, and GW. The United States was divided into three regions for the analysis: (1) Eastern, (2) Central, and (3) Western. The Eastern region included all states east of the Mississippi River. The Central region was separated from the Western region by a line that ran west of the Dakotas, Nebraska, Kansas, and New Mexico. The regions were chosen on the basis of demographic and market attributes. The Eastern market usually consists of smaller vol- umes of wool. Eastern producers have few market outlets except in niche areas. The wool produced in this region typically is variable in quality and style. In the Central region, generally more uniform wool in terms of qual- ity, style, and quantity is produced. In this region, most producers raise sheep on privately owned land. Marketing outlets are well established in the Central region, and producers, warehouse operators, and buyers have well-established relationships. Nearly 80 percent of the data observations were associated with the Central region, about 18 percent with the Western region, and roughly 3 percent with the Eastern region (Table 5-5). The data were separated into the three primary levels of preparation: (1) OB, (2) BOU, and (3) TSC. About 23 percent of the wool sold was identified as OB, 56 percent as BOU, and 21 percent as TSC. The data included sales of 17 different types of wool. The highest percentage of the wool sold (slightly more than 60 percent) was identified as in the Wool Breed, Main Line category. Nearly 9 percent of the observations were associated with the Tender category (fiber content not strong and easily broken) or the Short Line category (staple length shorter than three inches). Wool Breed Bellies and OB Wool Breeds each constituted about 7 percent of the wool sales. Bellies are inferior wool sheared from the belly of the sheep. The data for those groups surveyed without the resources to respond to the survey were collected from them by the research team.
THE U.S. WOOL INDUSTRY 271 TABLE 5-5â Number of Wool Lots Processed by Warehouses and Pools Surveyed by Region, Year, Level of Preparation, and Wool Types, January 1992 to January 2002 Number of Lots Processed % Region Western 1,555 18.1 Central 6,762 78.3 Eastern 281 3.3 Year 1990 1 0.0 1991 7 0.1 1992 5 0.1 1993 434 5.1 1994 426 5.0 1995 436 5.1 1996 408 4.8 1997 537 6.3 1998 657 7.7 1999 821 9.6 2000 1,630 19.0 2001 1,447 16.9 2002 1,768 20.6 Level of Preparation Original Bag (OB) 1,941 22.6 Bellies Out Untied (BOU) 4,812 56.0 Table Skirted Classed (TSC) 1,836 21.4 Wool Type Wool breed (wool type from BOU and TSC) Main line 5,305 61.8 Tender or short line 736 8.6 Bellies 606 37.1 Pieces 146 1.7 Stains 78 0.9 Locks 446 5.2 Clothing 77 0.9 Main line lamb 220 2.6 Meat breed Main line 133 1.6 Bellies 1 0.0 Wool types from OB Wool breeds 577 6.7 Meat breeds (white face) 100 1.2 Meat breeds (black face) 91 1.1 Hair or cross bred 42 0.5 Wool breed lamb 18 0.2 Meat breed lamb 3 0.0 Black 10 0.1 Source: Anderson et al. (2007). Copyright 2007 by TAMRC (Texas Agribusiness Market Research Center), Texas A&M University. Used with permission.
272 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Some of the original 8,589 observations were eliminated from further consideration in the analysis, including those for operations outside the Western, Central, and Eastern regions. Also, those corresponding to the years 1990, 1991, and 1992 were eliminated since data for those years were not available consistently across all respondents. Missing observations pertaining to U.S. clean price, average fiber diameter, and grease weight (lot weight) were discarded as well. Thus, the number of useable observations for the analysis was 8,533. The model postulates that premiums and discounts associated with the wool price received by growers are determined by the level of preparation method and the wool type, controlling for region, year, season, AFD, and GW (lot size). Past research considered prices only to be a function of wool preparation. The hedonic wool price model accounts for the three most prevalent levels of preparation (OB, BOU, and TSC) and various wool types, including wool from wool breeds (main line, tender or short line, bellies, pieces, stains, locks, clothing, and main line lamb); wool from meat breeds (main line and bellies); and wool from OB (white-face and black-face meat breeds, hair or cross bred, wool breed lamb, meat breed lamb, and black). The model explains about 83 percent of the variation in U.S. wool prices. The detailed estimation results, including the estimated coefficients and their associated p-values, are provided in the Appendix (Table 5A-1). The following is a summary of the key results. Seasonal Effects The months of April, May, July, and August were not significantly dif- ferent from the base month of September. The month corresponding to the highest U.S. clean prices was June, roughly 8 percent higher and statistically different than those of September (Figure 5-4). Wool prices received by producers also were higher in May and July relative to September but not significantly so. In accordance with prior expectations, wool prices received by producers from January to March as well as from October to December were significantly lower than those in September. The range of differences was from 5.9 percent lower in March to 17.4 percent lower in January. Unequivocally, seasonality in U.S. clean prices for wool is evident. Yearly Effects Consistent with prior expectations, U.S. clean wool prices were highest in 1995 and 1997 (Figure 5-5). Controlling for other factors, prices in 1995 Details on the model specification and estimation results are provided in the appendix to this chapter.
THE U.S. WOOL INDUSTRY 273 FIGURE 5-4â Percentage difference in U.S. clean wool price by month relative to the base month of September. Fig 5-04.eps Source: Anderson et al. (2007). Copyrightimage TAMRC (Texas Agribusiness bitmap 2007 by Market Research Center), Texas A&M University. Used with permission. were significantly higher by 17.7 percent relative to the base year of 1997. Prices in all remaining years from 1993 to 2002 were significantly lower relative to the base year of 1997. Annual price differences ranged from 11.8 percent lower in 1996 to 52.2 percent lower in 2000. Regional Effects As expected, U.S. clean wool prices received by producers were dis- counted by 7.9 percent and 9.8 percent, respectively, in the Eastern and Western regions relative to those in the Central region (Figure 5-6). Clearly, regional price differences were evident. Effects of Level of Preparation In line with most prior research studies, prices of TSC wool were sig- nificantly higher than OB wool by slightly more than 8 percent (Figure 5-7). Although prices of BOU wool were higher by about 2 percent relative to OB wool, this difference was not statistically different from zero. Importantly, as the level of preparation of wool increases, U.S. clean wool prices increase.
274 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES FIGURE 5-5â Percentage difference in U.S. clean wool price by year relative to the base year of 1997. Fig 5-05.eps Source: Anderson et al. (2007). Copyright 2007 by TAMRC (Texas Agribusiness bitmap image Market Research Center), Texas A&M University. Used with permission. FIGURE 5-6â Percentage difference in U.S. clean wool prices by U.S. region relative to the base region of the Central United5-06.eps Fig States. Source: Anderson et al. (2007). Copyrightimage TAMRC (Texas Agribusiness bitmap 2007 by Market Research Center), Texas A&M University. Used with permission.
THE U.S. WOOL INDUSTRY 275 FIGURE 5-7â Percentage difference in 5-07.eps Fig U.S. clean wool price by level of preparation relative to the base preparation of original image bitmap bag (OB). Source: Anderson et al. (2007). Copyright 2007 by TAMRC (Texas Agribusiness Market Research Center), Texas A&M University. Used with permission. Effects of Wool Type As expected, U.S. clean prices of TSC and BOU Main Line wool were higher by 23.5 percent over the base category of OB wool breed (Figure 5-8). U.S. clean prices of TSC and BOU clothing and main line lamb also were higher by 22.0 percent and 15.4 percent, respectively, over OB wool breed. Wool prices of TSC and BOU bellies, pieces, stains, and locks, all lowerâquality types, were discounted from slightly more than 25 percent for bellies to slightly more than 6 percent for locks relative to prices of OB wool breeds, the reference category. Significant differences in wool types from OB were evident as well. Rela- tive to prices associated with the base wool type (wool breeds from OB), prices of other wool types from OB were significantly lower, ranging from roughly 16 percent lower for wool breed lamb to nearly 70 percent lower for black wool (Figure 5-9). Prices of OB wool breed and those from meat breeds, either main line or bellies, were not statistically different. Clearly, U.S. clean prices differ significantly among wool types with relatively large premiums and discounts among wool types relative to OB wool breed types.
276 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 40.0 23.5 22.0 20.0 15.4 5.7 4.0 0.0 PERCENT â20.0 â12.1 â25.2 â40.0 â34.2 â60.0 â49.4 â62.8 â80.0 Tender or Main Line Meat Breed Meet Breed Main Line Bellies Pieces Tags Locks Clothing Short Line Lamb Main Line Bellies 23.5 5.7 â25.2 â34.2 â49.4 â62.8 22.0 15.4 4.0 â12.1 WOOL DESCRIPTION FIGURE 5-8â Percentage difference in U.S. clean wool price by wool types relative to the base OB-wool breed. Source: Anderson et al. (2007). Copyright 2007 by TAMRC (Texas Agribusiness Market Research Center), TexasFig 5-08.eps Used with permission. A&M University. 0.0 â10.0 â20.0 â16.4 â20.7 â30.0 â27.6 Percent â31.8 â40.0 â50.0 â50.3 â60.0 â70.0 â68.7 â80.0 Meat Meat Hair Wool Meat Black breeds breeds or breed breed (white (black cross lamb lamb face) face) breed â20.7 â31.8 â27.6 â16.4 â50.3 â68.7 Fig 5-09.eps FIGURE 5-9â Percentage difference in U.S. clean wool price by wool breed types relative to the base OB-wool breed. Source: Anderson et al. (2007). Copyright 2007 by TAMRC (Texas Agribusiness Market Research Center), Texas A&M University. Used with permission.
THE U.S. WOOL INDUSTRY 277 FIGURE 5-10â Relationship between U.S. clean wool price and average fiber diameter Fig 5-10.eps based on the sample of 8,533 observations (1 lb = 0.4536 kg). ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ bitmap image by TAMRC (Texas Agribusiness Source: Anderson et al. (2007). Copyright 2007 ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Market Research Center), Texas A&M University. Used with permission. Effects of Average Fiber Diameter As hypothesized, U.S. clean prices and AFD were negatively related (Figure 5-10). The elasticity of clean price to AFD was estimated to be â1.416, meaning that, controlling for all other influences on clean prices, a 10 percent change in AFD (e.g., a change from the sample mean of 22 microns to either 20 microns or 24 microns) leads to nearly a 14.2 percent change in price in the opposite direction (e.g., a change from the sample mean of $2.98/kg to either $2.56/kg or $3.40/kg). Thus, U.S. clean wool prices are highly sensitive to changes in AFD. Lot Size Effects Again, as hypothesized, clean wool price and lot size, as measured by GW, were positively related (Figure 5-11). The elasticity of clean price to
278 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES FIGURE 5-11â Relationship between lot size as measured by grease weight and U.S. Fig 5-11.eps clean wool price based on the sample of 8,533 observations (1 lb = 0.4536 kg). ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ bitmap imageby TAMRC (Texas Agribusiness Source: Anderson et al. ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ (2007). Copyright 2007 Market Research Center), Texas A&M University. Used with permission. GW was estimated to be 0.0162. Hence, a 10 percent change in lot size (e.g., a change from the sample mean of 3,851 kg to either 3,465 kg or 4,237 kg) leads to a 0.16 percent change in clean wool price. Although, this elasticity is statistically significant, practically speaking, U.S. clean wool prices were not heavily influenced by lot size. These results provide a basis for determining premiums or discounts relative to the current practice of marketing OB wool. Clearly, producers who do minimal preparation of their wool prior to sale are losing substantial premiums paid for wool that has been more prepared for sale. Certainly, the type of wool sold also makes a difference in the price received for wool by producers. The TSC and BOU clothing and main line lamb receive sub- stantial premiums over OB wool breed. Unfortunately, the U.S. wool industry has no consistent means of recording lot descriptions and sales to provide a consistent dataset for
THE U.S. WOOL INDUSTRY 279 calculating premiums and discounts available for wool of differing charac- teristics. Some warehouses and pools only keep subjective descriptions of wool characteristics while others maintain records on objective measure- ments of wool. Additionally, historical records are not always kept, or, if kept, they are not maintained efficiently with a consistent database system across warehouses and pools. Moreover, disclosure concerns keep some warehouses and pools from being willing to share information pertaining to sales. Additional information on factors for which records are generally not maintained, such as vegetable matter content, staple length, staple strength, and fiber color, are likely also to be important in determining the premiums paid and discounts deducted from U.S. wool prices. WOOL POLICIES AND REGULATIONS The first effort by the government to support the domestic wool industry was included in the provisions of the Buy American Act of 1933. That act required manufacturers of worsted goods for the U.S. Army to use domestic wools if available in grades needed and not unreasonably higher in price than foreign wools (Hyson, 1947). In 1940, as World War II loomed closer, the army began placing large orders for military fabrics containing wool. When domestic supplies proved insufficient to meet military needs in late 1940, the government began allowing the use of some imported wool. The principal government policy in support of the U.S. wool industry, however, came as the result of intense lobbying by wool producers, market- ers, and manufacturers in the 1950s, which spurred the U.S. Congress to commission various studies of the U.S. wool industry. A primary conclu- sion of the studies was that imports of lowâcost wool yarns, fabrics, and apparel goods were causing significant damage to domestic wool processing and manufacturing industries (National Wool Growers Association, 1965). The studies precipitated the passing of the National Wool Act in 1954 (P.L. 102-130), which was signed into law by President Eisenhower. The rationale for the support of wool production rested on the premise that wool was âan essential and strategic commodityâ that was not produced in sufficient quantities to meet domestic needs. The National Wool Act increased tariffs on all wool and woolen prod- ucts from $0.116/kg to $0.19/kg clean wool and established an incentive payment program for growers to be paid out of wool tariff revenues (USDA, 1999). The incentive portion included the establishment of a target price for raw wool and a payment to producers on the basis of the percentage difference between the national average market price and the target price. As a result, producers of better wool clips that earned higher market prices than inferior clips received larger incentive payments. In 1955, Congress authorized a âself-helpâ program to permit growers
280 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES to check-off funds from their incentive payments to be used to improve the production of lamb and wool and promote improved marketing of lamb and wool products to consumers. The authorization required that a sheep producer referendum be conducted that had to be approved by at least two-thirds of the sheep producers who owned at least two-thirds of the sheep in the United States. The referendum passed in 1956, resulting in the development of the American Sheep Producers Council with funding and management oversight through the USDA (National Wool Growers Association, 1965). Despite the incentive payments to growers, U.S. sheep numbers contin- ued to decline from the highs achieved in the 1940s, as noted in Chapter 1. In the early 1990s, President Clinton requested that Congress repeal the National Wool Act. In response, Congress approved a phaseout of the program over a 2-year period beginning in 1992, ending 42 years of federal support to the U.S. wool industry (USDA, 1999). Wool production declined markedly after incentive payments were terminated in 1994. The wool share of total revenues from sheep production fell to only about 10 percent after the termination of the Wool Act compared to 20â25 percent in years when the Wool Act was in force. Over the life of the Wool Act, the incentive payments to growers were less than imported wool tariff revenues. Because the tariffs on imported wool were not repealed when the Wool Act was terminated in 1994, the wool tariff revenues were diverted to the U.S. Treasury general fund. To investigate the market implications of the Wool Act, Whipple and Menkhaus (1990) developed an econometric simulation model that ac- counted for the jointness of lamb meat and wool production. They found that between 1960 and 1985, the wool incentive program had a number of positive effects on wool and lamb markets over what would have been the case in the absence of the program, including (1) 26 percent more sheep in the national breeding flock, (2) 29 percent more production of wool, (3) 17 percent more lamb production, (4) 30 percent more producer revenue from lamb and wool, (5) 23 percent lower lamb imports, (6) 6 percent lower wool imports, (7) 14 percent more lamb consumption, and (8) slightly more (about 1 percent) wool consumption. On the negative side for producers but on the positive side for consum- ers, Whipple and Menkhaus (1990) found that that as a result of the pro- gram, the retail price of lamb was 7 percent lower and the wholesale price of wool 3 percent lower than would have been the case without the program. The lower prices led to several other effects on the demand side of the wool market, including (1) 8 percent lower consumer lamb expenditures, (2) 9 percent lower consumer wool expenditures, (3) nearly 10 percent lower rev- enue accruing to lamb exporters, and (4) 5 percent lower revenue accruing to wool exporters. Importantly, government costs associated with the Wool
THE U.S. WOOL INDUSTRY 281 Act were in excess of $100 million. The Whipple and Menkhaus (1990) analysis concluded that the Wool Act had positive net benefits for lamb and wool consumers as well as sheep and lamb producers. Interestingly, they also concluded that the gains to lamb and wool consumers exceeded the gains to sheep and lamb producers as a result of the program. Lamb and wool exporters, on the other hand, suffered losses. Because of the rather sizeable increase in government costs associated with the incentive program, they estimated that the net national welfare effect of the Wool Act was a loss of between $25.7 million and $43.4 million. In 1974, the United States entered into the MFA with other developed textileâimporting countries and developing textileâexporting countries. Beginning in the 1930s, the United States and other developed textileâim- porting countries established a growing number of quotas and other re- strictions on textile imports from Japan, Hong Kong, Pakistan, India, and other developing countries. The MFA pulled together all these restrictions into one multilateral agreement and established import quotas for specific countries and products when imports threatened to disrupt domestic fiber markets (MacDonald and Vollrath, 2005). Under the MFA, quotas were set to increase annually at a target of 6 percent, although lower rates were often negotiated with major textile exporters. As discussed earlier, the MFA was replaced by the WTO ATC in 1995, which established a schedule for eliminating the MFA quotas and lowered textile and clothing tariffs. According to MacDonald and Vollrath (2005), the MFA increased textile and clothing production, reduced prices for clothing, and lowered textile consumption in the United States, the European Union (EU), and other developed textileâimporting countries. They indicate that the MFA quotas added 5 to 10 percent to clothing prices paid by U.S. consumers. The phased elimination of the MFA quotas under the ATC has had the opposite effect, allowing greater imports of wool and other fiber textile imports and leading to lower prices and production along the fiber and textile supply chains in the United States and other textileâimporting countries. China and other textileâexporting countries have benefited from the elimination of the MFA with increasing textile production and prices. Established by the U.S. Congress in 2000, the American Wool Trust has provided $9 million in funding through 2006 for activities aimed at increasing the competitiveness of American wool. The trust is administered by the ASI Wool Council, which includes representatives from the produc- tion, research, marketing, processing, manufacturing, and merchandising sectors of the wool industry. The trust supports producer communications, raw wool quality improvement, introduction of new raw wool measurement technologies to improve quality assurance for U.S. wools, product develop- ment and new uses for wool, research to develop improved wool process- ing technologies, improved market and price information, and improving
282 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES international marketing opportunities for U.S. wool. It also works closely on needs and new products for the U.S. military, which is the largest domestic user of American wool. The Farm Security and Rural Investment Act of 2002 reinstated wool price supports through marketing assistance loans (MALs) and loan defi- ciency payments (LDPs) for the 2002 to 2007 crop years (USDA, 2004). Commodity loan programs in general allow producers to receive a loan from the government at a commodity-specific loan rate per unit of production by pledging production as loan collateral. Wool and mohair nonrecourse MALs are 9-month loans that provide production financing to wool produc- ers and facilitate the orderly marketing of wool throughout the year. The loan rates for 2002â2007 are $2.20/kg for graded wool and $0.88/kg for nongraded wool. Instead of selling the wool and mohair immediately after shearing, a nonrecourse loan allows a producer to store the production, pledging the wool as collateral. The producer can then redeem the loan and sell the commodity when market conditions are more favorable in order to secure a higher market price. If the producer is unable to repay the loan, he or she can deliver the quantity of wool or mohair pledged as collateral to the USDA Commodity Credit Corporation (CCC) as full payment for the loan at maturity regardless of the market value of the wool at the time. In this way, marketing loans are repaid at less than principal plus accrued interest and other charges, with repayment of some portion of the relevant interest and principal being waived (USDA, 2004). Producers may also purchase commodity certificates and exchange a commodity certificate with outstand- ing loan collateral in repayment of marketing assistance loans. Commodity certificates are negotiable certificates that the CCC can exchange for a com- modity owned or controlled by the CCC. Instead of obtaining a loan on graded or ungraded wool, producers may request LDPs that are payable at the loan rate that would have been received for the lot of wool, less the announced repayment amount for wool of that quality (USDA, 2004). Loan deficiency payment rates for nongraded wool have ranged from $0.29/kg to $0.41/kg in 2007, with only wool finer than 20 microns eligible for the higher-graded wool rate. Unshorn pelts also are also eligible to receive a loan deficiency payment of $0.88/kg. The United States is not the only woolâproducing country to provide price support for producers. Price support programs in Australia, New Zealand, and South Africa set wool prices well above market levels, lead- ing to growing world stockpiles in the 1980s and early 1990s. During the 1990s, however, these stockpiles were gradually placed on the world mar- ket. Along with the collapse of the former Soviet Union in the early 1990s, which contributed to a notable decline in wool demand, and the repeal of the U.S. National Wool Act, the release particularly of Australian wool from
THE U.S. WOOL INDUSTRY 283 180 160 140 120 Cents per pound 100 80 60 40 20 0 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 FIGURE 5-12â U.S. farm price of wool, 1965â2005. Note: 1 lb = 0.4536 kg. Fig 5-12.eps Source: Based on data in USDA (2006). government stockpiles by the Australian Wool Council (AWC) depressed world wool prices from about 1995 through 2000. With the liquidation of the Australian stockpiles in August 2001, wool prices began to rebound (Figure 5-12). MAJOR ACCOMPLISHMENTS, OPPORTUNITIES, AND CHALLENGES OF THE U.S. WOOL INDUSTRY With the major transitions that have occurred in the sheep industry over time, the reductions in domestic wool manufacturing, changing consumer tastes and preferences, and the shift of textile manufacturing to China, India, and the developing economies in Eastern Europe, the U.S. wool industry has been under siege and in an almost constant state of adjustment. The industry has made some progress, however, in responding to these pressures and faces a number of opportunities. The industry still faces many chal- lenges as noted by several industry representatives in response to a survey requesting their input on the key opportunities and challenges facing the U.S. wool industry.
284 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Major Accomplishments of the U.S. Wool Industry â¢ Increases in wool preparation to international standards. The An- derson et al. (2007) hedonic wool price analysis reported that from 1992 to 2002, an average of 26 percent of the wool was marketed as OB, 56 percent as BOU, and 21 percent as TSC. The 2007 survey of major wool warehouses as presented in Table 5-1 reported that most warehouses received < 15 per- cent of their wool from growers as OB, 40 to 75 percent as BOU, and 30 to 50 percent as TSC. Several of the warehouses also reported that a significant portion of the wool in the BOU category had some of the tags, skirts, and vegetable matter removed even though it was not TSC. These data clearly indicate grower response to market premiums for improved preparation and from producer education programs sponsored by the American Wool Trust. â¢ New research and product developments. Industry support for collaborative research with funding from the American Wool Trust, U.S. military research laboratories, other federal research grants, and private industry have resulted in fabrics and garments that are machine washable, more breathable, and less prickly when worn against the skin; shrinkproof; and flame resistant. Research has also demonstrated the value of wool blends with cotton and certain synthetic fabrics (ASI, 2007c). Major Opportunities and Challenges Facing the U.S. Wool Industry To get a sense of the opportunities and challenges facing the wool in- dustry from an industry perspective, a questionnaire was sent to several key leaders in the wool industry, including market analysts, wool warehouse and wool pool managers, major wool buyers for domestic and international markets, key wool research scientists and extension specialists, and key pro- ducers. While the sample was by no means representative of all participants in the wool industry at all levels in terms of demographics or other charac- teristics, those who responded to the survey are among the most knowledge- able in the wool industry about how the industry functions and where it is headed. According to the survey respondents, the following are among the most important opportunities currently facing the U.S. wool industry: The following 10 people responded to a questionnaire on challenges and opportunities for the future of the wool industry: (1) Ronald L. Cole, USDA AMS Livestock & Grain Market News, Greely, CO; (2) Mike Corn, manager and co-owner, Roswell Wool, Roswell, NM; (3) Glen Fisher, wool warehouseman (Ret.) and industry leader, Sonora, TX; (4) Dr. Rodney Kott, extension sheep and wool specialist, Montana State University, Bozeman, MT; (5) Dr. Chris Lupton, wool research scientist, San Angelo Research and Extension Center, Texas A&M Uni- versity; (6) Tom McDonnel, McDonnel & Associates, Douglas, WY; (7) Ron Pope, manager, PMCI Wool Marketing, Mertzon, TX; (8) Larry Prager, Manager, Center of the Nation Wool, Belle Fouche, SD; (9) Dr. Robert Stobart, sheep and wool scientist, University of Wyoming,
THE U.S. WOOL INDUSTRY 285 â¢ International demand growth. Growth in the wool textile industries in China and other developing countries is also helping spur growth in income and purchasing power in these countries and a growing internal demand for wool apparel goods. International market development activi- ties could help widen the market for U.S. wool textiles in these growing markets. As incomes increase in these countries, the demand for apparel and other wool textiles could well outstrip their ability to both export and fill their growing internal demand. Market development activities could ef- fectively introduce a broader array of consumers in those markets to U.S. wool textiles through the efforts of the American Wool Trust with funding through the USDA Foreign Agriculture Service, along with the efforts of other groups to attract additional foreign buyers and provide technical as- sistance and training to U.S. wool producers, marketing organizations, and textile manufacturers. â¢ Grower price premiums from improved wool clip preparation. Al- though the percentage of U.S. wool that is prepared for market according to international market standards has increased, a tremendous opportunity exists for producers to significantly enhance their returns to wool produc- tion by dedicating more time and effort to further preparing their wool. Research presented here suggests that producers can receive an 8 percent or higher price premium by table skirting and classing their wool, rather than marketing it as OB wool. Some reputation clips that have been using TSC for â¥ 5 years are receiving 25 percent or higher premiums for their wool. â¢ New research developments. A number of new research develop- ments provide some promise of greater competitiveness and profitability in the wool industry, including the Kroy superwash process and enzyme research, which has produced machineâwashable wool fabrics that are shrinkproof and more user friendly and can encapsulate wool with resins to develop breathable, waterproof, stainârepellant, machineâwashable gar- ments for the U.S. military. Other promising research results include refined woolâcarded battings for use as sound absorption in automobiles and new wool products for the U.S. military in collaboration with U.S. military re- search laboratories. â¢ Retail wool advertising. Important opportunities may exist for ad- ditional advertising of wool at the retail level that emphasizes that wool is a natural product and renewable resource from sheep that can be used to enhance the environment through targeted or prescribed grazing practices to control invasive nonnative plant species. Other strengths of wool fabrics, such as their flame resistance and their use in blends to enhance synthetic fiber products, could be effective as well. â¢ Niche market growth. Although not potentially as great as emerging Laramie, WY; and (10) Don Van Nostran, general manager, Mid States Wool Growers Coop- erative, Canal Winchester, OH.
286 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES ethnic lamb markets, specialty wools for hand spinners, yarn for weav- ers and knitters, and other wools such as naturally colored wools have a small but growing market. Emphasis in this market is on natural products with increasing interest in organically grown wools. Wool may be sold as individual fleeces, yarn, fabric, or finished products. Mini-mills, ranging in one-time capacity of 20 to 100 tonnes clean wool, with products from yarn to fabric or finished products such as sweaters, blankets, and other apparel goods, represent a growing new market for wool (see Chapter 7). The industry also faces many challenges for the future, among which are the following suggested by the survey respondents: â¢ Re-invigorating the industry. The decline in sheep numbers over the last several decades has been accompanied by reductions in wool marketing entities and related infrastructure. The result has been fragmented selling systems, fewer domestic wool buyers, distance-to-market challenges for producers, reduced numbers of buyers, and greater concentration of the wool processing industry. If the industry is to avoid further downsizing and to achieve some growth, either new market opportunities will need to be found or effective means of enticing current consumers to purchase more lamb and wool (or some of both) will be necessary. â¢ Easing the shortage of qualified sheep shearers and wool classers. A worldwide shortage of qualified sheep shearers is becoming a limiting factor for many producers wishing to implement or expand their sheep enterprises. Proper shearing and wool classing by trained professionals is critical to achieving maximum value from a wool fleece. The sharp decline in U.S. sheep numbers, however, has also drastically reduced the number of shearers and discouraged many from learning the trade. The industry has compensated over the years by bringing in qualified shearers from Austra- lia and elsewhere in their off-season to harvest the wool from U.S. sheep. However, this practice has become less common in recent years because of a growing shortage of shearers in those countries and the difficulty of obtain- ing the necessary work visas in a timely manner for foreign sheep shearers in the post-9/11 era. New requirements and delays in obtaining work visas for sheep shearers and H2A visas for sheep herders are a major challenge for producers and shearing crew operators. Australia and New Zealand have developed coordinated training and certification programs for shearers to improve or maintain the quality and value of the wool fiber harvested from their sheep. For example, AWI is spending about $13 million over 3 years to improve the training of shearers and develop better shearing technology in a bid to stop a massive shearer shortage in that country. While various shearer training programs are also available in this country, a major chal- lenge is enticing people to become wool harvesting professionals through
THE U.S. WOOL INDUSTRY 287 enhanced promotion and training of sheep shearing and wool classing as occupations with financial support to trainees and producer hosts of training programs. â¢ Encouraging growers to prepare their wool to international market standards. The income earned from wool by sheep producers currently ranges from < 5 percent to 30 percent of their gross income from sheep production. Although many progressive producers are committed to pro- ducing a quality wool clip, most generally view wool as a byproduct and are more committed to increasing lamb production since this is their major income source. Increasingly in the future, competing in international mar- kets and obtaining competitive prices for wool will require U.S. growers to produce, harvest, prepare, and market their wool to international standards. Encouraging growers in this direction is one of the primary educational chal- lenges for the industry leadership and organizations. Effective educational programs would emphasize the price determinant factors most critical to wool clip value and the ASI Code of Practices for Wool Clip Preparation. â¢ Reducing the contamination from hair sheep breeds. As some grow- ers turn from wool breeds to hair breeds, a continuing challenge for the wool clip is contamination with hair, kemp, and colored fibers in the process of grading up from traditional breeds to hair sheep breeds through mating hair breed males to traditional wool breed females, which normally requires three to four generations (e.g., Â½, Â¾, etc.). â¢ Increasing support for wool research and development. As national sheep inventories have declined, research support for the industry has de- clined and focused increasingly on lamb rather than wool production and marketing. Additional research support is critically needed in a number of areas in the wool industry, including (1) genetic improvement of the range maternal breeds for increased production of both wool and lamb; (2) im- provements in marketing standards to enhance the competitiveness of U.S. wools with those of Australia and other major wool producing countries; (3) new wool product development to meet changing consumer needs and growing challenges from competing fibers; (4) collaboration with military research and product development programs; (5) the use of bioclip chemical defleecing as an alternative to shearing in the United States; and (6) research focusing on own-price, cross-price, and income elasticities for wool both domestically and internationally to support pricing, promotion, policy, and other strategic decision making in the industry. Demand analyses involving wool, cotton, and synthetic fibers are necessary at both the mill and retail levels. Survey respondents also suggested that several other issues will continue to challenge the future growth and development of the U.S. wool industry, including changing practices and regulations relative to public land sheep grazing permits, the impact of increasing private land market prices on sheep
288 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES production, and the decline in support for sheep research, education, and extension programs at the landâgrant universities and federal agencies. REFERENCES Anderson, D. P., O. Capps, Jr., E. E. Davis, and S. D. Hager. 2007. Wool Price Differences by Preparation in the United States. Consumer and Product Research Report No. CP-02-07, Texas Agribusiness Market Research Center, Texas A&M University, College Station. June. ASI (American Sheep Industry Association). 2002. SID Sheep Production Handbook: Wool Chapter. Englewood, CO: American Sheep Industry Association. ASI. 2007a. Wool Marketing. Online at: http://www.sheepusa.org/index.phtml?page=site/ text&nav_id=b5cd92c158e527a90be72c1ce8be84a2. Accessed August 23, 2007. ASI. 2007b. China dominates U.S. wool export market. December 14 edition, weekly newslet- ter. Englewood, CO. Online at: http://www.sheepindustrynews.org. ASI. 2007c. American Wool Trust Annual Report to Congress. Englewood, CO: American Sheep Industry Association. ATMI (American Textile Manufacturers Institute). 2003. The China threat to world textile and apparel trade. Washington, DC. Online at: http://www.ncto.org/textilecrisis/china. pdf. Accessed August 23, 2007. Babula, R. A. 1996. An empirical examination of U.S. lamb-related import and domestic mar- ket relationships near the farmgate. J. Int. Food Agr. Marketing 8(2):65â82. Capps, Jr., O. and G. W. Williams. 2006. The Economic Effectiveness of the Cotton Checkoff Program. Commodity Market Research Report No. CM-02-06, Texas Agribusiness Mar- ket Research Center, Texas A&M University, College Station. November. Capps, Jr., O., D. A. Bessler, G. C. Davis, J. P. Nichols, C. G. Anderson, and E. G. Smith. 1997. Economic Evaluation of the Cotton Checkoff Program. Department Technical Report 97- 2, Department of Agricultural Economics, Texas A&M University, College Station. Clements, K. W., and Y. Lan. 2001. World fibers demand. J. Agric. Appl. Econ. 33:1â23. Dickerson, K. 1999. Textiles and Apparel in the Global Economy, Third Edition. Englewood Cliffs, NJ: Prentice-Hall. Donald, J. R., F. Lowenstein, and M. S. Simon. 1963. The Demand for Textiles in the United States. Technical Bulletin No. 1301, Economic Research Service, U.S. Department of Agriculture, Washington, DC. Dudley, G. E. 1974. U.S. Textiles Fiber Demand: Price Elasticities in Major End-user Markets. Technical Bulletin No. 1500, Economic Research Service, U.S. Department of Agriculture, Washington, DC. Hager, S. D. 2003. Determining price differences among different classes of wool from the United States and Australia. MS Thesis. Department of Agricultural Economics, Texas A&M University, College Station. December. Hyson, C. D. 1947. Maladjustments in the wool industry and need for new policy. J. Farm Econ. 29:425â456. Kott, R. 1997. Wool: What is it worth? Sheep Ind. J. 1:15. Lowenstein, F. 1952. Factors affecting the domestic mill consumption of cotton. Agric. Econ. Rev. 4:44â51. Lupton, C. J., F. A. Pfeiffer, and N. E. Blakeman. 1989. Optimizing the value of grease wool through preparation and marketing. SID Res. J. 5:1â20. Lupton, C. J., F. A. Pfeiffer, N. E. Blakeman, D. N. Ueckert, and J. E. Huston. 1992. Effects of skirting on yield, fineness, and value of wool from fine-wool range ewes. J. Anim. Sci. 70:2657â3664.
THE U.S. WOOL INDUSTRY 289 Lupton, C. J., F. A. Pfeiffer, and N. E. Blakeman. 1993. Economic impact of pre-sale fiber measurements on prices paid for wool. Sheep Goat Res. J. 9:35â37. Lupton, C. J., F. A. Pfeiffer, and S. Byrns. 1996. Adding value to wool clips by fleece skirting and classing. Research Reports: Sheep and Goat, Wool and Mohair 57:51â52. MacDonald, S., and T. Vollrath. 2005. The Forces Shaping World Cotton Consumption after the Multifiber Arrangement. Report No. CWS-05c-01. Electronic Outlook Report. Eco- nomic Research Service. U.S. Department of Agriculture. Washington, DC. April. Online at: http://www.ers.usda.gov/publications/cws/apr05/cws05c01/cws05c01.pdf. Accessed August 22, 2007. Murray, B. C., R. H. Beach, W. J. White, C. Viator, N. Piggott, and M. Wohlgenant. 2001. An Economic Analysis of the Cotton Research and Promotion Program. Project No. 8024. Research Triangle Institute Intenational, Research Triangle Park, NC. National Wool Growers Association. 1965. Men, Sheep and 100 Years. The National Wool Grower: Special Publication. Salt Lake City, UT. NCTO (National Council of Textile Organizations). 2007. Trade and jobs. Online at: http:// www.ncto.org/tradejobs/. Accessed August 23, 2007. Pan, S., and S. Mohanty. 2005. Technical documentation of the world fiber model. Cotton Economics Research Institute, Department of Agricultural and Applied Economics. Texas Tech University. Lubbock. Pfeiffer, F. A., and C. J. Lupton. 1999. Results of skirting and classing on the value of wool from fine-wool range ewes. J. Anim. Sci. 77(Suppl. 1):245 (Abstr.). Shui, S., J. C. Beghin, and M. Wohlgenant. 1993. The impact of technical change, scale effects, and forward ordering on U.S. fiber demands. Am. J. Agric. Econ. 75:632â641. Stennis, E. A., M. Pinar, and A. J. Allen. 1983. The futures market and price discovery in the textile industry. Am. J. Agric. Econ. 65:308â310. USDA (U.S. Department of Agriculture). 1999. Economic Impact of the Elimination of the National Wool Act. Economic Research Service. Report prepared for the U.S. House of Representatives Committee on Appropriations, as requested in House report 105â588, page 16 (1998). Online at: http://www.ers.usda.gov/Briefing/Sheep/WoolActStudy.pdf. Accessed November 10, 2007. USDA. 2004. Wool and Mohair Marketing Assistance Loan and Loan Deficiency Payment Program. Program Fact Sheets. Farm Service Agency. Washington, DC., December. Online at: http://www.fsa.usda.gov/FSA/webapp?area=home&subject=prsu&topic=col-nl-wm. Accessed May 5, 2008. USDA. 2006. Cotton and Wool Situation and Outlook Yearbook. November. Economic Re- search Service. Washington, DC. USDA. 2007. Quick Stats. National Agricultural Statistics Service. Online at: http://www.nass. usda.gov/Data_and_Statistics/Quick_Stats/index.asp. Accessed August 8, 2007. USDC (U.S. Department of Commerce). 2007. Adjustment of import limits for certain cotton, wool, man-made fiber, silk blend and other vegetable fiber textiles and textile prod- ucts produced or manufactured in the Peopleâs Republic of China. Committee for the Implementation of Textile Agreements, Office of Textiles and Apparel, Washington, DC, August. Online at: http://www.otexa.ita.doc.gov/fr2006/chin13(07-07).htm. Accessed May 5, 2008. Whipple, G. D., and D. J. Menkhaus. 1990. Welfare implications of the Wool Act. Western J. Agric. Econ. 15:33â44. Wilcox, C. 2007. Woolmark, Inc. report on the economic status of wool production, market- ing, manufacturing and consumer demand. Presented at the ASI annual meeting in San Antonio, TX, January. WOOLNEWS.net. 2007. Monthly Newsletter. January through June. Online at: http://www. woolnews.net.
290 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES APPENDIX The Hedonic Wool Price Model The statistical model employed in the analysis is given by the following equation: log U.S. Clean Price it = Î±0 + Î±1January + Î±2February + Î±3March + Î±4April + Î±5May + Î±6June + Î±7July + Î±8August + Î±9October + Î±10November + Î±11December + Î±12YR1993 + Î±13YR1994 + Î±14YR1995 + Î±15YR1996 + Î±16YR1998 + Î±17YR1999 + Î±18YR2000 + Î±19YR2001 + Î±20YR2002 + Î±21WESTERN + Î±22EASTERN + Î±23log AFDit + Î±24log GWit + Î±25OU + Î±26TSC + Î±27WT MAINLINE + Î±28WTTENDERORSHORT LINE + Î±29WTBELLIES + Î±30WTPIECES + Î±31WTSTAINS + Î±32WTLOCKS + Î±33WTCLOTHING + Î±34WTMAINLINELAMB + Î±35WTMBMAINLINE + Î±36WTMBBELLIES + Î±37WTOBMBWHITEFACE + Î±38WTOBMBBLACK FACE + Î±39WTOBHAIRORCROSS BRED + Î±40WTOBWOOLBREEDLAMB + Î±41WTOBMEATBREEDLAMB + Î±42 WTOBBLACK + ei where the variables in the model include the following: January, February, etc. Seasonal dummy or indicator variables YRyyyy Dummy variables corresponding to year yyyy WESTERN, EASTERN Regional indicator variables BOU, TSC Level of preparation indicator variables AFD Average fiber diameter (microns) GW Grease weight of the lot (pounds) Wool-type indicator variables (wool breed (types from BOU and TSC), namely Main Line; Tender or Short Line; Bellies; Pieces; Stains; Locks; Clothing; and Main Line Lamb; Meat Breed, namely Main Line and Bellies; and Wool types from OB, namely Meat Breeds (White Face); Meat Breeds (Black Face); Hair or Cross Bred; Wool Bred Lamb; Meat Breed Lamb; and Black). The base year and month for the analysis were chosen to be 1997 and September, respectively. The Central region was chosen to be the base re- gion. The reference categories for level of preparation and wool type were Original Bag and Original Bag Wool Breeds. Original Bag corresponds to the lowest level of preparation and the Original Bag Wool Breed corresponds to the highest quality wool for the OB level of preparation. U.S. clean prices are hypothesized to be the highest in the third quarter
THE U.S. WOOL INDUSTRY 291 of the year when wool supply is less abundant. The majority of the world wool production is clipped and sold during the first and fourth quarters of the year. A large proportion of U.S. wool is clipped in April and May. U.S. wool prices are expected to be higher in 1995 and 1997 relative to other years. Prices in the Eastern and Western regions of the United States are expected to be lower compared to prices in the Central region. Marketing outlets for wool in the Central region have been well established relative to those of other regions. Also, more uniform wool in terms of quality, style, and quantity generally is produced in the Central region relative to other regions. Importantly, BOU and TSC prepared wools are expected, a priori, to command a premium to OB wool. As well, BOU and TSC Main Line wool and BOU and TSC Tender or Short Line wool are expected to command a premium over wool types from OB. Further, average fiber diameter (AFD) is hypothesized to be inversely related to U.S. clean price. Finally, the lot size as measured by grease weight is expected to be positively related to U.S. clean price. The closer a lot is to a truckload, the less money buyers spend on transportation per kilogram. The model was used to examine price differences for U.S. wools by preparation and by type using data collected from warehouses and pool sales across the United States over the period 1993 to 2002. The goal was to determine premiums/discounts in wool prices by preparation and type, controlling for season, year, region, average fiber diameter, and lot size. The hedonic price model explains about 83 percent of the variation in U.S. wool prices (Table 5A-1). The estimated coefficients and their associated p- values are provided in Table 5A-1). The level of significance chosen for this analysis to conduct statistical tests is 0.01, given the rather sizeable sample of 8,533 observations. Given that the dependent variable is the logarithm of U.S. clean price, the interpretation of the estimated coefficients for each of the qualitative variables (season, year, region, level of preparation, and wool type) is in terms of percentage changes. To calculate the premium/dis- count or the percentage difference relative to the base or reference category for each of the qualitative variables, the transformation exp(> i-1)*100% can be used, where > i is the estimated coefficient associated with the ith indicator variable. Also, note that the U.S. clean price, AFD, and grease weight (GW) of the lot size are expressed in terms of logarithms. Consequently, the estimated coefficient of AFD and of GW in the hedonic price model represent elas- ticities, the percentage change in U.S. clean price due to a unit percentage change in AFD and GW, respectively. The model explained about 83 percent of the variation in U.S. wool prices over the study period. Seasonality in U.S. clean wool prices was evident. Wool prices received by producers from January to March as well
292 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES TABLE 5A-1â Estimated Coefficients and P-Values in the Hedonic Price Model Estimated Premium/Discount Coefficients Relative to Base P-value Month January â0.1913 â17.4 <0.001 February â0.0789 â7.6 <0.001 March â0.0608 â5.9 <0.001 April â0.0156 â1.5 0.212 May 0.0065 0.6 0.532 June 0.0779 8.1 <0.001 July 0.0039 0.5 0.756 August â0.0240 â2.4 0.081 September Base Base Base October â0.0624 â6.0 <0.001 November â0.1154 â10.9 <0.001 December â0.1267 â11.9 <0.001 Year 1993 â0.4947 â39.0 <0.001 1994 â0.1922 â17.5 <0.001 1995 0.1629 17.7 <0.001 1996 â0.1260 â11.8 <0.001 1997 Base Base Base 1998 â0.2702 â23.7 <0.001 1999 â0.7013 â50.4 <0.001 2000 â0.7379 â52.2 <0.001 2001 â0.6249 â46.5 <0.001 2002 â0.2921 â25.3 <0.001 Level of Original Bag Base Base Base â Preparation Bellies Out Untied 0.0209 2.1 0.270 Table Skirted Classed 0.0811 8.4 <0.001 Region Central Base Base Base Western â0.1036 â9.8 <0.001 Eastern â0.0823 â7.9 <0.001 Wool Breed Main Line 0.2114 23.5 <0.001 â (Wool Types Tender/Short Line 0.0551 5.7 0.013 â from BOU Bellies â0.2903 â25.2 <0.001 â and TSC) Pieces â0.4179 â34.2 <0.001 Stains â0.6808 â49.4 <0.001 Locks â0.9894 â62.8 <0.001 Clothing 0.1986 22.0 <0.001 Main Line Lamb 0.1432 15.4 <0.001 Meat Breed Main Line 0.0394 4.0 0.174 Bellies â0.1288 â12.1 0.545 Wool Types Wool Breed Base Base Base â from OB Meat Breed (White Face) â0.2325 â20.7 <0.001 Meat Breeds (Black Face) â0.3826 â31.8 <0.001 Hair or Cross Bred â0.3226 â27.6 <0.001 Wool Breed Lamb â0.1790 â16.4 <0.001 Meat Breed Lamb â0.6988 â50.3 <0.00l Black â1.1606 â68.7 <0.001 Log of Average â1.4160 <0.001 â Fiber Diameter Log of Grease 0.0162 <0.001 â Weight Constant 4.8090 <0.001 R 2 = 0.8303 P P
THE U.S. WOOL INDUSTRY 293 as from October to December were significantly lower from 5.9 percent to 17.4 percent than prices in September. Wool prices in June were roughly 8 percent higher than those of September. As expected, U.S. clean wool prices were highest in 1995 and 1997. Prices in remaining years from 1993 to 2002 were significantly lower, from 11.8 percent to 52.2 percent relative to the base year of 1997. Further, U.S. clean wool prices were discounted by 7.9 percent and 9.8 percent, respectively, in the Eastern and Western regions of the United States relative to the Central region. In line with prior research, prices of TSC wool were significantly higher than OB wool by slightly more than 8 percent. Significant differences among wool types also were evident. In particular, U.S. clean prices of TSC and BOU Main Line Wool were higher by 23.5 percent over the OB wool breed. Significant differences were noted as well among wool types from OB. Among wool types, the premiums/discounts relative to OB wool breed type were quite large in magnitude. U.S. clean wool prices were found to be highly sensitive to changes in AFD. The elasticity of the clean wool price with respect to AFD was estimated to be about â1.42. Lot size, as measured by GW, also positively affected U.S. clean prices. The elasticity of clean price with respect to lot size was estimated at 0.16.