Mecardo Analysis - Apparel price ranks

This article is bought to you by C Pearce Contracting and Glendemar MPM.

By Andrew Woods | Source: AWC, AWRAP, AWEX, PCI Wood Mackenzie, Emerging Markets, RBA, ICS

Key points

· Cotton and polyester staple prices are currently trading in their bottom five year deciles in US dollar terms.

· Acrylic prices are trading at a better five year lower quartile in US dollar terms.

· The average merino micron price in contrast is trading near its fiver year median level in US dollar terms, outperforming the other fibres handily.

Wool prices are part of a much larger apparel fibre complex, so analysis of wool prices without reference to what is going on with apparel fibre prices generally is incomplete. To fill in this background, we take a look at the performance of prices for major apparel fibres in relation to the average merino micron price.

Rolling five year percentiles are used to compare price levels for different apparel fibres in this article, rather than the more standard price ratio. Rolling percentiles simply show when a price series is expensive, cheap or fair value in relation to the previous five years, so this comparison allows a comparison of their relative "value" through time.

Ad - It's Hay season soon. For the best results contact C Pearce Contracting - Ad 

Figure 1 compares the rolling five year percentile rank for a cotton price series and the average merino micron price, both in US dollar terms from the mid-1980s to this month (to date). Since the early 1990s the ranks for cotton and merino have followed each other quite closely, with the exception of 2002 when the merino wool price rose strongly in response to the final liquidation in mid-1991 of the stockpile hangover from the Reserve Price Scheme. Note how the cotton price is currently in the lowest decile, whereas the average merino price is close to its median of the past five years.

In Figure 2 the average merino wool price rank is compared to an acrylic price rank series. The acrylic rank is currently around its lowest quartile (25th percentile), a full quartile below the rank of the merino price.

Polyester staple is the fibre used for comparison in Figure 3. The polyester staple price rank is close to five year lows, a level last reached in 2015 and before that 2009.

The average merino micron price therefore is outperforming the larger fibres handsomely. From a risk perspective the much lower percentile ranks for cotton, polyester staple and to a lesser extent acrylic point to continued downward pressure on the wool price series. The best take on this perspective is that it rules out a return to early 2019 US dollar levels. It is conceivable that a significantly weaker Australian dollar could help support local wool prices. The bleaker take on the perspective is that wool prices will be pulled lower at some stage this season.

What the comparisons show is that the weaker merino wool prices see this season fit with the general apparel fibre background to the market. Low supply looks to be helping the merino price outperform the other fibres but supply is not strong enough to buck the downward trend.

What does this mean?

The major apparel fibre prices are plumbing the depths of a down cycle, for the first time since 2015 in US dollar terms. With major apparel fibre prices in low deciles, it would be most unusual for wool prices to be not under downward pressure. The fall in wool prices since the autumn make sense from this perspective. What about low supply? The relative out performance of wool (the average merino price is trading near five year median levels in US dollar terms) is one area low supply seems to be showing up. Looking forward, the cyclical downward pressure on wool prices will only come when the other fibres start to lift in price (and rank).

www.mecardo.com.au

Ad - Glendemar MPM - Open Day is on the 20th of September and our Ram Sale is on the 2nd of October - Ad