Bingo.
My alt is a tailor. I will play 2-4 max level characters a week, just doing dailies, so I have an excess amount of cloth to send to my tailor. Other than the vendor supplies, it costs me nothing to make bags.
As long as I’m getting more off the AH compared to just vendoring the cloth, that’s a win.
swims across millions of gold to press the “like” button
Ah I see well nevermind then, so it might be what you’re saying instead.
Not if they’re gathering the materials themselves instead of buying them.
if you dont undercut the stuff comes back in your mailbox after 48 hours.
anyone that doesnt wanna be bothered with reposting ad nauseam indefinitely will undercut.
blame the system not the ppl 
I mean this is market economics, if someone is listing below cost that’s on them not you. They will lose money. /shrug
Obviously there is nothing in game that prevents this, so not sure what to do other than suggest to find a different commodity?
They could also have a stockpile of pre-9.2.7 thread sitting in the bank.
Edit: after looking at it on the AH, I also wonder if Shrouded Cloth bags simply don’t have enough value to pull in higher prices due to the existence of Lightless Silk Pouchs. Idk what the difference is on OP’s server but on mine SCBs are 170g and LSPs are 320g, at those prices I see no reason not to simply go with the LSPs instead for the extra bag space. LSPs would need to cost ten times as much to get me to consider SCBs for my alts.
I don’t think they’re referring to the materials you gather… I believe they are referring to the materials you have to purchase from the vendor. 15 thread I believe at what 9g? 11g? each.
Edit: @OP I can’t tell you why people do that… but it has always been that way. Not bags necessarily, but there are times and things that people will post things cheaper than the vendor mat cost.
Is that factoring in the 20% discount from rep? You can buy the mats in each zone from a vendor that will give you a rep discount, but the mat vendor in Oribos will not.
I’ve noticed similar situations with enchanting. I used to make a bunch of old enchants good for levelling characters and it was common that i could make a reasonable profit buying mats and selling the enchants. It’s either the complete opposite now where the cost of mats far outweighs the value of the enchant or the value of the enchant has diminished so greatly and become so abundant it’s not worth the effort.
Someone isn’t paying attention in class. The bags require a component that you have to buy from a vendor. That thread costs 132 gold per bag.
At exalted, the thread currently costs 8.8 gold and you need 15 of them.
Too many doozers, not enough fraggles.
I’m not a crafter 
And that we’re reaching the end of an expansion, so fewer buyers and IIRC the bags will be obsolete next expansion with a bigger size coming out.
So a massive surplus. It’s not undercutting, it’s a market doing what it’s supposed to do to correct for that surplus.
Which is all the bags compete for a limited number of buyers which drops the cost below the cost of the inputs, which signals to people that produce them to stop producing them.
Although Blizzards is a little bonheaded in their thinking when it comes to raising the cost of the thread. All that is going to do is maintain a huge surplus in cloth because there is nothing you can do with the surplus.
I noticed that the shrouded cloth material should cost 40-55 silver but sometimes if you refresh there’s someone selling it for 10silver and just 1 piece, then that player wait for someone to post a package with that price and it buys the whole stack…I tried to buy the single piece with low price to screw their undercutting strategy but it still happens all the time.
it’s ridiculous now but wait until DF drops, we should see a solid improvement.
Welcome to the economy, come and take a seat, some of us don’t give a hoot about prices that we meet,
Long and short of it I’m willing to put important things like bags and essential gear on there for nothing because other players need it. We’re all playing this game and everyone deserves a chance.
Also happy to drain someone’s coffers whenever I can 
Catch me working hard to completely outsell everyone in DF by working my butt off to mass produce bags and gear and then sell’em forrrrr a silver
Understood. But some items- like threads, vials, etc- cannot be farmed. So for a lot of items there is a base crafting cost.
If the bags are selling for less than 132g, then yes, you are losing gold. At that point you are better off doing the vendor shuffle with the green cloth robes. It still vendors for more (49g and change) than the thread cost, so at least you are guaranteed to make a few gold on each.