Mecardo Analysis - AWTA volumes wool supply remains very low

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By Andrew Woods | Source: AWTA, BOM, ICS

Key points

· July AWTA greasy wool volumes were down by a small 5.9% (farm bales).

· On a rolling three month change the May to July volumes were down a more substantial 17.1%.

· The core 19 micron category volume was down 15% for the three months to July.

· Supply changes will continue to flatten the micron price curve.

AWTA core test volumes fell by only 5.9% in July. In this article we update the changes in greasy wool supply as measured by the AWTA core test volumes, looking to see if this relatively small fall in July volumes has made much of a difference.

Last month Mecardo looked the relationship between rainfall and greasy wool volumes (read here). Rainfall impacts greasy wool volumes through the number of sheep on farm (hence shorn) and fleece weights. Figure 1 is a reprise of the graph from last month with the data to July added. The change in wool volumes shown is a rolling three month smoothed year on year change. In July the volume of greasy wool tested by the AWTA fell by a small 5.9% (farm bales) but on a rolling three month calculation, volumes were down 17.1% in the May to July period. Individual monthly data can jump around due to influences on shearing such as holidays and rainfall, so a rolling three month measure of the change is used to smooth out such effects.

July wool volumes tested are generally the smallest of the calendar months, accounting for around 5% of the full season volume. This means the surprisingly small fall of 5.9% in the July volume has a smaller impact on supply.

In Figure 2 the three month change in volume is broken up by fibre diameter. The stark difference in the supply situation for fine and broad Merino wool persists, and stands out in Figure 2. Broad Merino wool continues to be undersupplied in Australia, as does the core crossbred micron category range of 27-30 micron.

The supply pressure on the micron price curve (more fine wool supply pushing fine wool prices down and a shortage of broad Merino prices pushing broad merino prices up, at least relatively) will continue through at the first half of this season. Figure 1 shows that with median rainfall the rainfall rank will return to close to median levels by the end of this season (middle of 2020). Such a scenario would see the supply switching in the second half of the season to less fine wool and more broad Merino wool. Here's hoping for median or better rainfall this season.

The excellent AWTA web page allows this data to be interrogated in many ways. When looking at the changes by state, Western Australian volumes bucked the falling eastern trend by rising by 13% in July. Western Australia led the east into falling volumes in early 2018, and now is leading the east into rising volumes.

What does this mean?

The drop in greasy wool supply resulting from the consecutively dry years of 2017 and 2018 is likely around its peak level. Where supply goes to from now depends on the spring 2019 rainfall. The micron price curve will continue to be flattened by supply changes through the first half of this season. Median rainfall would be enough to cause this to start to change in the second half of the season. Will the fall in volume be enough to offset the downtrend in fibre prices? Unlikely. The lower volumes will soften the effect of the downtrend as will a lower exchange rate.

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