Sheepskins go from being worthless to in demand in a year

Merino sheepskins command the highest prices due to the high-quality wool on the hide. (ABC Rural: Lara Webster)

In just 12 months, lamb and sheepskin prices have risen from being worthless to the highest prices seen in years.

The Australian sheepskin market is driven by demand from Chinese buyers, who are paying more due to low supply.

Prices are expected to remain high while sheepskin supply remains low.

A buoyant wool market is driving up the value of Australian sheep skins, reversing the dramatic downturn where worthless skins were dumped in landfill just 12 months ago.

The upward trend is being fuelled by a spike in merino wool prices and demand from Chinese buyers, who are purchasing more due to low supply.

Farmers just one year ago were forced to pay meat processors to dispose of the by-product, but now can expect some of the strongest prices seen in years.

Sheepskins are sheep hides that have been treated and preserved with the wool still attached, making them soft, insulating and widely used for things like rugs, boots and clothing.

Meat and Livestock Australia (MLA) senior market information analyst Emiliano Diaz said the turnaround was linked to increased demand for wool, which had reached seven-year highs.

While higher quality merino skins have been commanding the highest prices, crossbred skins have also increased, with values of up to $15, Mr Diaz said.

Emiliano Diaz says the wool prices are the best they have been in years. (Supplied: MLA)

Almost all demand for Australian sheepskins comes from China, with an oversupply of skins due to destocking largely to blame for the previously low prices.

"We are coming from a very high slaughter rate in the last three years, even a record for lamb, very high for mutton, so a lot of supply was coming into the market," Mr Diaz said.

Mr Diaz said reduced supply had resulted in higher wool prices, which had been the driver behind skin values increasing in the past 12 months.

Australia and New Zealand supply most of the lamb and sheepskins used globally. (ABC Rural: Karen Hunt)

Australian Hide, Skin and Leather Exporters Association vice president Luke Kivlighon said the change in prices was not a surprise.

"It always makes us happy, you don't want things going to landfill if there is a use and we can get a margin out of it.

"It's good to be able to give the farmer something back. It was a dreadful time when they were getting charged minuses for skins."

Most of the sheepskins will be processed overseas. (ABC News: Joshua Becker)

The industry's focus continues to be on international marke