Mecardo Analysis - AWTA and rainfall

By: "Farm Tender" News
Ag Tech News
Jul 02, 2019
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By Andrew Woods | Source: AWTA, BOM, ICS

The volume of farm bales tested by the AWTA in June fell year on year by 25.8% which caps off a season where volumes started to fall substantially last spring. This article takes a look at wool production during the past decade and the likely change coming in 2019-2020.

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As plenty of Mecardo articles have discussed, changes in supply of greasy wool are not evenly felt across the different micron categories. For the first part of this article, though, we will focus on total greasy wool volumes which are driven by the size of the flock, the flock structure and the average fleece weight.

Figure 1 shows the rolling year on year change in AWTA total core test volumes (farm bales and smoothed over three months) from 2005 to last month. Overlaid on the graph is the rolling 12 month rainfall rank (weighted across the different regions for wool production and advanced by four months). The rainfall rank series does a good job of explaining the swings in greasy wool production since 2005. It does not explain all of the variations in greasy wool volumes but to borrow a line from Peter Hayman, rainfall explains the tide in greasy wool supply fluctuations (view here).

With total volumes down 25.8% in June (down 17% when smoothed by three months) where does that leave us for the coming season? In Figure 1 the rolling 12 month rainfall rank provides a natural four month leading indicator to the spring, as the rainfall data is advanced by four months. Beyond that historical median, rainfall is used to extend the rainfall rank and in doing so provides a “middle” projection. The middle projection points to volumes remaining below year earlier levels through most of the 2019-2020 season, gradually rising to zero year on year change sometime in mid-2020.

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As mentioned above, changes in volume are not evenly spread across the different categories. Figure 2 shows the full season change (2018-19 volumes versus 2017-2018 volumes) by micron category, with cardings and the total volume change also shown. 18 and 19 micron volumes have been relatively unchanged, with sub 18 micron volumes well up for the season and 20 micron and broader volumes down with the exception of fine crossbred 24-26 micron wool.

2019-07-02 Wool 1

Key points

* AWTA volumes have fallen throughout 2018-19, in line with deteriorating seasonal conditions

* Median rainfall projections point to AWTA volumes remaining below year earlier levels through the 2019-2020 season

* The change in total AWTA volumes is not evenly distributed across the different micron categories

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What does this mean?

While demand issues are driving the greasy wool market lower at present, low supply will persist as an issue for the supply chain in the 2019-2020 season. Supply risk seems likely to increase the price volatility of the greasy wool market. Supply risk will vary between micron categories depending on when and where rainfall falls in the next six months. The framework for a particularly tricky season in terms of price and supply risk appears to be in place.

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