Back in late March we noticed this odd mass on one of the small eucalypt trees. On-line research indicates it belongs to a variety of caterpillar known as “processionary caterpillars”, the larval stage of the bag shelter moth (Ochrogaster lunifer). They reportedly tend to move en-mass in single file, mostly at night, and leaving strands of fine thread marking their path.
The caterpillars have fine hairs that have been implicated skin irritations and allergic reactions in humans, and respiratory distress and abortions in livestock, especially horses. If you see a mass like this hanging in a tree, do not try to handle it! Even the shed hairs in the nest and leaf litter can cause irritations. More information on human reactions to these insects can be found at http://medent.usyd.edu.au/fact/caterpillars.htm. Research into Equine Amnionitis and Foetal Loss attributed to the processionary caterpillar can be obtained from RIRDC (Rural Industries Research and Development Corporation).