Mecardo Analysis - Checking the fine merino market against the past three decades
- By: "Farm Tender" News
- Ag Tech News
- Aug 21, 2018
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By Andrew Woods | Source: AWC, WI, CSIRO, AWEX, RBA, ICS
The strength of the current merino market has prompted questions about how fine merino prices stack up against the levels reached in the late 1980s. This article takes a look at sub-19 micron prices back to the mid-1980s.
Not all of the fine micron categories currently sold in the auction market were produced in the 1980s. In terms of micron categories reported from auction data, 15 micron is the finest micron category with price and volume data available prior to the mid-1990s. Keep in mind that in the late 1980s 15 micron was some 7 microns finer than the average merino micron category, which is equivalent to 12 micron today when the average micron is around 19 micron.
One note on the different data series used in this article. The early (pre mid-1990s) price data is a weighted average for all wool sold in the micron categories, while the prices from the mid-1990s onwards are averages for sound, combing fleece wool. Given the limited and specialised level of supplies of fine wool in the 1980s and early 1990s, the change in wool used to develop the different series should not cause too much distortion.
Figure 1 shows the average annual price for 15 and 16 micron from 1985-1986 through to this season (to July 2018 only). The 15 micron price between 1990 and 2002 stands out, with the annual average price ranging from the high thirties up to one hundred dollars. For 16 micron the late 1980s remains the period of strongest price, reaching $48 in 1989-90. The average 16 micron price in 2017-18 was the best price since 2000-2001.
Figure 2 shows the annual average price series for 17 and 18 micron from the mid-1980s onwards. For these two series, the current market is above the 2000-2001 price cycle. While the 17 micron price is still well below the late 1980s price levels, the 18 micron price is now above its late 1980s level.
Exchange rates can muddy the waters as far as understanding the strength of a market. Figure 3 looks at the 15 and 16 micron price series from the mid-1980s onwards in US dollar terms. For the 15 micron price series, the introduction of the exchange rate does not diminish the strength of prices seen from 1990 to 2002. However, it does change the experience of the post-2002 period. The three prices cycles (2008, 20011-12 and the current cycle are all similar in US dollar terms. For 16 micron the strength of the 1999-2001 cycles falls away, with the past two cycles delivering higher prices. There is a lesson in this, that strong prices need to be checked for exchange rate effects.
Figure 4 shows the 17 and 18 micron prices series in USD terms from the mid-1980s onwards. For the 17 micron, the late 1980s price cycle remains a lot higher than the current market. For both the 17 and 18 micron series the 2011 cycle is much stronger when viewed in US dollar terms. So much so, the current cycle is only slightly above the 2011 cycle which is a much different story seen in Australian dollar terms.
Key points
* For the sub-18 micron price series, the late 1980s price cycle remains the touchstone cycle, the time of highest prices.
* 15 micron is the finest micron category reported prior to the mid-1990s and was some 6-7 microns finer than the average merino micron category.
* The price story of different price cycles since 2001 is quite different for the fine micron categories when viewed in different exchange rates.
What does this mean?
The current price cycle for 18 micron is higher than the late 1980s prices cycle. For 15 micron the current cycle is a long way below the prices seen in 1990-2001, although the increase in supply of 15 micron needs to be kept in mind. For 16 and 17 micron the current cycle is on par to higher than anything seen since the late 1980s.
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