By COLLEEN SCHREIBER
Reprinted from the Livestock Weekly

(November 1, 2007)The domestic wool industry has been through significant changes over the last 50 to 100 years, but those changes have never been more significant than the ones that have come about in the last 10 to 15 years.

That was part of the message delivered by a panel of wool buyers at the annual convention of the Texas Sheep and Goat Raisers’ Association in Kerrville, Texas.

Jason Bannowsky, of Lempriere USA, and Rick Honaker, Anodyne Inc., represent two of the last three major wool buying companies left in the United States. They were asked to address how the domestic wool market has changed over the last five to 10 years, how those changes have impacted the wool industry in general and then how those changes have impacted growers.

The biggest change to the industry in general, Bannowsky told listeners, is that 10 to 15 years ago the United States was consuming about 75 percent of its domestic production and only exporting 25 percent. Today, it’s just the opposite. Today, 75 percent of the domestic clip is exported.

Honaker also pointed out that a decade or so ago there were three combing plants still in operation on the East Coast. All three were located in South Carolina.

The shift from mostly domestic consumption to exports, Bannowsky told listeners, forced buyers to make a lot of changes in the way they handle wool.

“In the export business, you have to be able to present a product overseas that’s comparable to a product from other countries,” he explained. “Thus we’ve had to change the way we prepare our wools from classification to packaging.

“These overseas mills have very specific specifications on yield, micron, vegetable matter, and then there is a certain range for length and a range of acceptability in terms of colored fibers,” Bannowsky continued.

Honaker agreed.

The reason first stage processing has moved overseas, the buyers said, is two-fold – cheaper labor and looser environmental regulations.

“Those are the things that have put our domestic wool manufacturers out of business,” Bannowsky remarked. “It takes a lot of water to clean wool, and then there’s the effluent. It has to go somewhere, and the carbonizing process produces certain emissions. All of these things are closely regulated in the United States, and they’re not so closely regulated in places like China,” he pointed out.

Add on top of that the difference in labor costs — $10 to $15 per hour in the U.S. versus 50 cents a day in China.

The reason the buyers are so focused on what happens in China is because today 60 percent of the world’s wool production is consumed in China. Most of the wools going to China, Bannowsky noted, are being further processed. In many cases they’re taking it all the way to finished cloth or to finished product, and that finished product is then exported, primarily to Europe, the United States and Japan.

Another change brought on by this shift from domestic consumption to exports is that for the buyers there is a great deal more risk involved in their business today. For example, fluctuation in currency or fluctuation in the market price after the wool has been purchased but before the overseas customer takes delivery is a huge risk for domestic buyers.

“Currency is a huge, huge portion of our business,” Bannowsky told listeners. “The strengthening or weakening of the U.S. dollar plays a dramatic role.”

“In the interim period from the time we buy the wools until we get them ready to export, if the market changes dramatically or if the currency changes and we’re on the wrong side of that change, that can have a huge impact on our business,” Honaker added.

Bannowsky also pointed out that developing a working relationship with overseas customers is also difficult. Often there is an issue with payment itself.

“Some companies that we sell to, payment is very secure, like against a letter of credit or if we sell cash against documents,” he explained, “but even then there’s a lot of risk involved. For example, we may sell some wool to an overseas company for shipment in mid-September and then the market goes down, and so they don’t ever open the letter of credit. So we’re stuck with a load of wool that we thought we had sold,” Bannowsky explained.

“With some countries you sell on open terms,” he continued. “Sometimes you can get credit insurance, and in that case you ship it and 90 days after it arrives you get paid, but even then there’s a risk,” he noted.

All of these changes at the wool buyer level ultimately trickle down the line to the grower. Contamination remains a big problem at the grower level, and that not only impacts the grower in terms of price, but it also has an impact on the reputation of the entire domestic wool industry.

“We still continue to see the age-old contamination problem with polypropylene,” Bannowsky told listeners. “We’ve talked about it, talked about it, talked about it.”
He admitted that poly contamination is less of a problem in Texas than in other parts of the country, but any poly contamination is a big deal.

These days, however, the single biggest contamination problem in the wool industry, particularly in Texas, Bannowsky said, is kemp in the wool, a problem which results from growers crossing hair sheep with wooled sheep.

“When we first started Lempriere USA, we had a 5000-pound clip sent to a mill in India,” Bannowsky told listeners. “The mill called us back, said there was a certain lot that was about half kemp. We said ‘That can’t be.’ We went back to that warehouseman, he talked to the producer, and the producer said yes, there were about half those sheep that were Dorper crosses. The grower just didn’t know.

“The mill claimed on us. Not only did they say they didn’t want that one lot, but they didn’t want any of it.

“We don’t grow our business by not making things right,” Bannowsky continued. “We were wrong. It cost us severely.”

Contamination most often occurs in the shearing pens when growers shear crossbred sheep ahead of their fine-wool sheep, but Bannowsky said he has even run into contamination problems where Dorpers were running in a separate pasture but next to a pasture with wooled sheep.

“I’m not saying don’t go to Dorpers,” Bannowsky remarked, “but if you’re going to have them, it’s so critical to keepthose animals totally separate from your wool sheep.”

Bannowsky noted that kemp contamination is becoming more of a problem in Australia, as well. Consequently, kemp contamination risk is now included in the AWEX typing system.

Honaker, too, couldn’t stress enough the seriousness of the kemp contamination problem.

“Dorper has zero value to us,” Honaker told listeners. “If we find any in the clip, we walk away from it. It’s not worth the expense of the claim that could come down on us.”

He noted that it’s not just one contaminated clip that causes problems. If it’s not caught in time, when it goes into the combing process that one contaminated clip contaminates an entire combing blend.

“That means we could get claimed on for not just that one clip but the entire blend. It’s very expensive, and it’s a tremendous problem for us,” Honaker reiterated.

That led to some comments from the audience. Sonora ranchman and American Sheep Industry Association executive officer, Glen Fisher, suggested that perhaps warehousemen should reject clips in which they find contamination.

“We’re asking for help from the warehousemen and from producers,” Honaker responded. “This problem is just killing off more domestic people. We need to police our own,” he insisted.

In terms of preparation and packaging of wool, Australia is the standard to which all other wool producing countries are compared.

“They’re years ahead of us in terms of putting up a product,” Bannowsky remarked.
Honaker agreed that Texas growers are a little behind. He attributed that, in part, to a lack of shearers.

“It’s hard to get good shearers anymore. Many growers take what they can get on the day they can get it.”

Bannowsky also noted that the flock size in Texas is much smaller than it once was, typically from 50 to 300 head, and he recognized the challenges that growers with these smaller flocks face with regard to preparation and packaging. Often, it’s not cost-effective for them to go to the expense of baling, so many producers still use burlap bags.

In general, Honaker told listeners that only 30 percent to 40 percent of the Texas wool clip is in an exportable state, meaning properly graded and packaged, when the wool buyer purchases it. That means the buyers then have to sort and repackage the other 60 percent to 70 percent of the wools before they can be shipped overseas.

“We have a big warehouse where we rehabilitate the wool,” Honaker explained. “We bust the bales open, take the wool out of the bags, put like wools together and then repackage it so that when it arrives at the overseas mill it can go straight into the water without anyone else handling it.”

Sorting and repacking wool takes time, and time is money, particularly when the market or currency change abruptly, Honaker noted.

“I would 10 times, 100 times rather buy wool that is fully tested, put up in packs that had the proper level of preparation any day,” Bannowsky concluded. “I’d rather pay more money and have that done than pay less money and have to work it ourselves.”