Mecardo Analysis - Drought pattern in wool yields
- By: "Farm Tender" News
- Ag Tech News
- Oct 11, 2018
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By Andrew Woods | Source: AWTA, AWEX, ICS.
One wool specification which always comes under pressure in droughts is yield. While the supply chain has long ago moved to operate on a clean basis (albeit with a range of different yields), consignment specifications often nominate minimum and average yields. In a normal year this is not really an issue but in a drought year, the increased supply of lower yielding wool causes some problems in meeting consignment specifications. This article takes a look at the drought patterns in wool yield.
Figure 1 compares the monthly average yield for wool tested by the AWTA in 2002, 2006 and 2018. Data begins in January for each of the three years and runs for 18 months (the 2018 data runs to September only). The patterns for 2002 and 2006 follow each other quite closely, and 2018 is following the patterns of these two earlier years very closely. From October onwards the yield declines sharply through to early in the following calendar year with the average yield falling by 4-5%. From this simple analysis, we can expect the average yield of wool offered for sale in eastern Australia to fall between this month and February by 4-5%.
To give a feel for what a 4-5% drop in the average yield means Figure 2 compares the yield distribution for wool sold in January-February 2007 and January-February 2006, with the change shown by bars. The volume of 30-50% yielding wool, while still a relatively small proportion of the overall wool offered, increased by around 40%. At the higher end of yields, supply falls for wool with a yield of 70% and greater. In effect, an oversupply of low yielding wool and an undersupply of high yielding wool develops, which exporters will accommodate quickly and efficiently by adjusting relative prices (premiums and discounts).
In recent weeks, feedback from auctions indicate that discounts for low yielding wool are starting to widen. This tendency was probably accentuated by the market falling at the time. Figure 1 tells us that the supply of low yielding wool will start to lift in the next 4-5 months, putting further pressure on prices for these wools.
Key points
* In drought years average wool yields fall from October through to February by 4-5%.
* The current 2018 wool yield pattern is following the 2002 and 2006 pattern very closely.
* The supply of low yielding wool is likely to peak in the March quarter in 2019, with peak pressure on discounts for these types of wool.
What does this mean?
Wool quality suffers from droughts, although with a lagged effect. One of the qualities that suffers is wool yield. We can expect the average wool yield in eastern Australia to fall from now through to the March quarter in 2019, with discounts rising for low yielding wools as a consequence. The Western Australian clip will partly offset this supply of low yield. Think carefully about holding low yielding wool during the next 4-5 months.
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