Mecardo Analysis - Micron price curves in the current greasy wool market
- By: "Farm Tender" News
- Ag Tech News
- Sep 11, 2018
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By Andrew Woods | Source: AWEX, ICS.
Given the increasing supply of fine Merino wool and the continued shortage of broad Merino wool, what is happening to the price relativities between micron categories? This article takes a look at the micron price curves from last week’s auction sales in eastern Australia.
During the past 15 years, 19 micron fleece has had a median premium to 21 micron fleece of 15% (143 cents clean). When there is a shortfall in broader Merino supply, the price of the broader wool pushes up and narrows the gap. In the current market, 19 micron fleece is trading at a small 7% premium to 21 micron fleece (which due to the high price levels, is still a credible 167 cents).
On the finer side of the micron distribution, 17 micron fleece has had a median premium of 19% to 19 micron fleece during the past 15 years (around 200 cents clean). When seasonal conditions push the micron distribution finer, the supply of broad wool falls and the supply of fine wool rises, with any change in overall volumes an added complication. Last week, 17 micron fleece traded at a 20% premium to 19 micron fleece (a premium of 491 cents), slightly above the long-term median.
Figure 1 shows the price curve for Merino fleece wool (full length, sound and with generally good specifications) from last week. The price differences for the 20 through 23 micron are negligible, reflecting the extreme supply pressure on these categories. Around 19.5-20 micron, the price starts to rise, lifting by 2%-6% per half micron. These are very good premiums, however, supply looks set to test them.
Until recent months the key regions exhibiting dry conditions in their wool quality have been Western Australia and the eastern pastoral regions, limiting the increases in supply of fine wool as these regions produce broader Merino wool. This is changing, as the source of wool supply rotates into the eastern non-pastoral regions.
Figure 2 shows a similar analysis for crossbred fleece from last week. 21-23 micron prices are flat for crossbred fleece, and then start to fall from 24 micron onwards by 10-17% per micron, with an inflection point around 26-27 micron.
Figure 3 puts the two price curves together. The extreme shortfall in broad Merino wool shows up with the 21-23 micron crossbred fleece price very close to that of Merino fleece. Typically, the benchmark discount for crossbred fleece would be in the order of 10% (220-270 cents in the current market), but this is not a typical market. It seems a reasonable inference that the high Merino prices are pulling up the sub-28 micron crossbred prices. On the broader side of the crossbred micron range, prices remain low by historical standards.
Key points
* Fine Merino prices continue to exhibit strong premiums of 2% to 6% per half micron, starting from around 19.5 micron.
* Broad Merino prices remain flat, at high levels.
* Fine crossbred prices are close to broad Merino prices.
* The strong broad Merino market is pulling sub-28 micron crossbred prices higher.
What does this mean?
Where there is an inflection point in a micron price curve there is scope for some smart packaging of wool, in trying to push more wool into the more valuable categories. The opposite applies around 23 micron for crossbred wool, where the inflection point is a downward one. However, there is an upward inflection point for crossbred fleece around 27 micron, and for Merino, a weaker inflection point around 19-20 micron. This is where a smart broker, working with the wool classer can add value.
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