Mecardo Analysis - Broad crossbred prices for Aus & NZ

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By Andrew Woods | Source: AWEX, RBA, PGG, ICS

Key points

· The 34-36 micron categories have given up all the rises they enjoyed in the first part of 2019.

· This goes for Australian and New Zealand prices. In effect one market – two regions.

· The longer term perspective shows the 34-36 micron prices have returned to the levels of the past two major cyclical levels of recent decades.

With all of the action in the merino and Australian crossbred markets in recent months, Mecardo thought it time to check up on broad crossbred prices (or what the Kiwis call crossbred wool) to see if they have been dragged along with the rest of the greasy wool markets.

New Zealand is the major producer of 38-39 micron wool in the world, which is at the very coarse edge of the micron distribution produced in Australia. As a way of checking the Australian prices for broader crossbred wool, it is useful to compare to New Zealand prices or in reality the comparable changes in New Zealand prices.

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Figure 1 compares a monthly average price series for Australian 34 micron wool with a New Zealand series for 34 micron full length wool, both in Australian dollar terms. For New Zealand wool reports that contain this information go here. From a low point in late 2018, the price lifted by around 50% until the autumn. Since then it has given up most of the gains, returning to late 2018 micron levels. This holds for both the Australian and New Zealand series.

In Figure 2, a 35 micron average Australian price series is shown compared to a 36 micron full wool New Zealand series. It is a similar story since late 2018, with prices rising strongly until around April, before giving up the rises and returning to the low levels of late 2018.

For the very coarse microns (in this case 38-39 micron) New Zealand only series are shown in Figure 3, running from mid-2017 to this month. In the past couple of years the price series have reached lows around the end of the calendar year, risen through to the middle of the calendar year and then collapsed again.

Finally, for a long term perspective on 34-36 micron prices Figure 4 shows the time series for Australian prices since 1995. The 36 micron price is plumbing the depths of cyclical lows seen in 2006-2010 and before that 1998-2001. The 34 micron price has not quite fallen to such lows, but is close enough.

What does this mean?

Early in 2019 there was some expectation that broad crossbred prices would lift, which was proved correct. However the weakness in the merino and finer crossbred prices of Australia has been reflected in complete loss of these price rises in the broader crossbred categories. While downside for the coarser crossbred wool looks to be limited, the market has shown a predilection to hand around cyclical low levels for 3-4 years at a time.

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