Header Image

Helping grow
the country

< Back to Blog
Wool News: Flexi Contract
2 October 2020

Wool News: Innovative wool contract generates $20m and puts $2m of premiums into Strong Wool grower pockets

In 2012 after a period of severe strong wool price volatility where growers and International manufacturers saw New Zealand wool prices soar to around $6.70/Kg Clean, then watched as it declined by 50% within 2 years. It was frustrating and debilitating for everyone involved in the wool supply chain.

PGG Wrightson’s international sales & marketing business Bloch & Behrens at the time was challenged by some of its international customers to come up with a way to combat this volatility.

This provided the mandate for Palle Petersen, General Manager of Bloch & Behrens to come up with the concept of a ‘3 Year Flexi-Contract’, an innovative wool product designed to reduce the impact of the volatile spot market for both growers and International manufacturers.

“Manufacturers needed to commit to purchasing wool up to 3 years forward, and they could do this without having to lock into a fixed price. As the name suggests the flexi-price enables some upsides or downsides but not to the extent of what had happened in 2010-2012 as the world came out of the Global Financial Crisis in 2008”, says Palle.

“We can only offer this type of contract with our premium international customers who we know and trust and have been working with for many years. As we navigate our way through the current Covid crisis this product will once again help smooth any potential future volatility”.

Since inception, the '3 Year Flexi-Contract' has facilitated the sale and purchase of approx. 5million kilograms of New Zealand strong wool between growers and international manufacturers.

“This resulting export revenue for New Zealand can be quantified at approx. NZD20m, which is a very pleasing figure for this one sales platform”, adds Palle.

“The most satisfying aspect has been the fact that in the last five years PGG Wrightson Wool has paid around $2m of premiums directly to New Zealand strong wool growers over and above the spot market.”

The pricing mechanism we use is transparent and quite straight forward, says Palle. “We have a moving average on a specific wool type as the baseline, and then adjust the price accordingly when the underlying wool is delivered which can be better or worse than the baseline wool type”.

The benefit of this product to New Zealand strong wool growers has been well received and having the strength of PGG Wrightson behind these grower contracts is a win-win for growers. As the price is based on a 3-year moving average, the curves at some point will crossover at which time the international manufacturers will enjoy some benefit like growers have done for the last 5 years.

At time of writing the flexi contract is paying growers $2.84/Kg Clean compared to the current spot market price of $1.82/Kg.

 

Wool News: Flexi Wool Contracts Graph

Related Articles

Livestock Roundup - 25 September 2020

28 September 2020
Peter Moore joins Mark Leishman on CountryTV to discuss the latest livestock news.

Wool News: Marchi and Fildi Case Study

02 October 2020
Bloch & Behrens Wool (NZ) Ltd is pleased to welcome Italian yarn manufacturer Marchi & Fildi as a Wool Integrity™ brand partner.

Marchi & Fildi is a textile group located in Italy, Turkey, and Brazil.

The company is focused on the production of worsted and carded yarns, home-textiles, hosiery, weaving, and circular knitting including open-end technologies. Its technical yarns cover major application fields such as protective-wear, workwear, home-textiles, automotive, filtration, fashion, and tailor-made products.

The company's strength is sustainability, with reductions of 30% in energy used in spinning, over the last 5 years, consumption of 50% less water than conventional dyes and yarns obtained through the process of textile production cut-outs.

Marchi & Fildi have recently released their new collection using a recycled cotton blend and New Zealand Wool Integrity™ wool produced by farmers that caringly grow the wool under strict animal welfare and environmental conditions.

Marchi & Fildi SpA was founded in 2007, merging two influential Italian spinning mills, Filatura Marchi and Fildi. They a dynamic company that soon became an international leader in the field of technological and performance yarns.

Bloch and Behrens Wool General Manager, Palle Petersen says “We are excited about the new collaboration, and we already have our first trials underway with Marchi & Fildi, who work closely with some well-known fashion houses.”
 

The PGG Wrightson Livestock Report 8 Oct 2020

08 October 2020

The Country's Jamie Mackay is joined by PGG Wrightson's GM for Livestock, Peter Moore, to look at the state of the nation in terms of New Zealand's livestock market.

Moore talked about the various climate conditions across the country, with dry spells on the east coast of the North Island and in northern Otago, and wet patches throughout the bottom of the South Island.

Mackay asked if store stock was being brought forward, as farmers on the east coasts had been told to expect a dry summer.

Moore confirmed this and added that there was a larger than usual yarding at Stortford Lodge yesterday, as farmers were being cautious and not wanting to be caught out.

Mackay asked Moore about the new season lambing schedules, and where they would be placed during the peak of the season.

Moore anticipated that there would be a dip in prices, but only time would tell, as the market was much softer compared to 12 months ago.

The beef market continued to be strong, Moore said, and he pointed out that ground beef was doing well as a commodity and noted that fast food providers were doing also well.

Mackay wrapped up the interview by asking about the venison market, as it usually was a high end export product and it has been impacted by Covid-19.

Moore noted that prices were better than anticipated and that over time the venison market would recover.

Mackay also noted that it would be a great time to promote venison in the domestic market, as it might fall into a better price range.

Share this page