Mecardo Analysis - Cashmere and wool prices

By: "Farm Tender" News
Ag Tech News
Mar 07, 2019
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By Andrew Woods | Source: AWEX, G Schneider, WTiN, RBA, ICS.

This article is bought to you by Air Seeder Consulting Services.

According to The Schneider Group, cashmere production in China (the main producer) fell in 2018 for various reasons. This has prompted us to have a look at cashmere and fine wool prices.

The annual cashmere report from the Schneider Group is available here. According to the report, cashmere goat numbers in China (around 120 million in total) are under pressure from stricter environmental measures (Beijing is prone to summer dust storms coming from the west), increasing feed costs and finally a factor we see in our markets, increased lamb meat prices which are dragging farm resources out of cashmere production.

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China accounts for about 60% of world production so changes to cashmere goat numbers in China will be significant for world cashmere production. Meat prices are reported to be high in Iran as well, with goat numbers under pressure as they are sold to butchers. Mongolia, the second largest producers of cashmere, is in a slightly different position as Schneider report the government is trying to boost the cashmere industry generally. On the whole, cashmere production looks to be under some downward pressure.

Figure 1 shows a price series for cashmere and for 16 micron combing fleece, in US cents per kg terms, from 1995 to February. More often than not, the two series tend to follow similar cycles, albeit at markedly different price levels. There have been some periods when the prices for the different fibres have moved in different directions, notably 2012-2016. The period from 2013 to 2014 saw a big increase in fine wool supply by which time cashmere prices were falling. This is a plausible reason for the 16 micron price not to follow the cashmere price cycle up in 2013-2014.

Fine wool is once more struggling with an increase in supply, brought on by drought. This is better shown in Figure 2 which shows the simple price ratio of the 16 micron series to the cashmere series. Generally, the ratio operates from around 0.2-0.23 on the high side to around 0.9-0.1 on the low side. In other words, the average 16 micron combing fleece prices ranges from 10% to 20% of the top cashmere price series. The ratio peaked in early 2018 and fell through to late 2018 as increased fine wool supplies put downward pressure on the ratio.

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The price ratio has bounced in recent months to be currently around 0.14, a neutral level which is neither high nor low. The cashmere price series has eased slightly since last 2018, but this is the off-season for cashmere. The cashmere buying season begins after Easter and this is when prices will start to genuinely reflect the balance between supply and demand.

2019-03-07 Wool 1

Key points

* Cashmere supply in 2018 was down in China, the major producer, due to a range of reasons which in the main are going to persist.

* High sheep meat prices are putting downward pressure on cashmere goat numbers.

* The 16 micron to cashmere price ratio is currently at a neutral level, neither cheap nor expensive.

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What does this mean?

The top cashmere prices tend to be ten to twenty times that of the average 16 micron combing fleece price. As such, there is always plenty of temptation to blend wool into cashmere. The current price ratio shows wool to be neutral in relation to cashmere, so any price firmness stimulated by lower cashmere supplies is likely to stimulate some demand for fine wool for blending purposes. The new season supply of cashmere will become obvious in the last quarter of 2018-2019.

www.mecardo.com.au