Mecardo Analysis - Matching up Australian crossbred prices with NZ prices
- By: "Farm Tender" News
- Ag Tech News
- Jan 31, 2019
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By Andrew Woods | Source: AWEX, RBA, PGG Wrightson.
As the major Merino wool producer, Australian prices are the effective benchmark for greasy Merino prices. This benchmark position is aided by the transparency of the market, in large part due to market reporting by AWEX. New Zealand has been through a dark decade of low-level greasy wool price reporting. In recent years PGG Wrightson has resurrected market reporting and this article uses this data to test Australian crossbred prices against New Zealand prices.
New Zealand, as the primary producer of 38-39 micron wool, is the benchmark market for broad crossbred wool. With PGG Wrightson reports (View here) New Zealand wool prices are available in a detailed and regular manner. For 30 micron and broader wool, New Zealand prices offer a more stable view than Australian prices, simply because they are coming from a bigger market.
The greasy wool market is a true international market, with raw wool collected from around the world, processed and then distributed out for sale at the retail level. As such, prices for raw wool in different geographic regions tend to follow each other quite closely.
Figure 1 compares the eastern Australian 28 MPG and the PGG Wrightson 28 micron quote from mid-2017 onwards, in Australian cents per kg terms. While there are some short term differences, since mid-2017 the two series have had a high correlation.
Figure 2 compares an average Australian 34 micron price (all in except downs) with the New Zealand full length 32 micron series. The correlation falls away, although this can be explained in large part by low quotes from a couple of months in the New Zealand series.
In Figure 3, three series are shown. These are an Australian average 34 micron price series (all in except downs), the full length New Zealand 34 micron series and a short 35 micron series (50-75 mm length second shear). The Australian series has effectively no correlation with the full length New Zealand series, but has quite a reasonable correlation with the shorter 35 micron series. The message in this comparison seems to be that we need to be careful which New Zealand series is used to benchmark Australian crossbred prices.
Finally, in Figure 4, the New Zealand quotes are shown in Australian dollar terms for the big New Zealand micron categories by volume, 38 and 39 micron. The data runs from mid-2017 to this month. It shows prices have slumped back to levels seen a year ago, much to the disappointment of New Zealand farmers.
Key points
* For direct comparison, the New Zealand 28 micron full-length price series matches up well with the Australian 28 MPG.
* Things are trickier for 30 micron plus comparisons, with Australian price series having a higher correlation with the prices of shorter New Zealand categories.
* Prices for New Zealand 38-39 micron wool have returned to the low levels seen in early 2018.
What does this mean?
In the Australian wool clip, volumes for crossbred wool broader than 30 micron can be very low at some stages of the season, so quotes can be hard to develop. The New Zealand greasy wool market offers data which can be used to fill gaps in prices, even if some assumptions about basis (price difference) need to be made. The brief comparisons shown in this article highlight the need to select the correct New Zealand series for comparison. The PGG Wrightson website makes New Zealand market reports available which Australian farmers can access in a timely manner.
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