Mecardo Analysis - Price ranges within micron
- By: "Farm Tender" News
- Ag Tech News
- Sep 27, 2018
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By Andrew Whitelaw | Source: AWEX, ICS.
The greasy wool market has gone through some structural changes in the past fifty years, some of which are captured by standard market reporting and some which are not. One of the structural changes in the past two decades has been the shrinkage of premiums and discounts in proportional terms. This article takes a look at the trends for key Merino micron categories.
Staple strength and staple length have historically played a big role in determining the price for Merino fleece, with mid-point break and the calculated TEAM formulae playing more of a role in recent times. However, the price effects of these wool characteristics have shrunk in the past two decades. Figure 1 looks at the 19 micron category from 1995 onwards and shows the proportion premium for the 95th percentile price level to the median price at monthly intervals. It also shows the discount for the 5th price percentile to the median price. In essence Figure 1 shows the range in price between the middle and price levels at the top 5% and bottom 5% of lots.
In proportion terms, the premiums and discounts in Figure 1 have been shrinking, as the simple trends show. In the late 1990s the top prices for 19 micron wool sold at premiums of 40-60%, while the cheapest lots were discounted by 70%. By 2018 the premium for the 95th percentile level had shrunk to a modest 11%, while the discount for the 5th percentile was around 30%, typical of a discount for stains.
In Figure 2 the analysis is repeated for 17 micron wool. It shows a similar story where the premiums hold at high levels through to 2001-2003 and then shrink although the premiums look to have stabilised around 2010. Discounts have shrunk from massive levels in the late 1990s, reaching a minimum around 2015 before widening again but still remaining at modest levels.
The 21 micron category is analysed in Figure 3. Premiums were much higher in the late 1990s, then shrank significantly in 2001-2002 and stabilised at the lower level. The 21 micron category will have some crossbred types dragging the low price discounts down, but even with this factor discounts are less than twenty years ago and this at a time when the 28 MPG discount to the 21 MPG is massive.
What about looking at the P&Ds in cents per kg terms? Figure 4 shows the discounts from Figure 1 expressed in US cents per kg terms. The premium has still trended lower (slightly) although it could be argued the premiums have varied around a stable base since 2001. The discounts though show a different story. Whereas in proportion terms they have trended smaller, in absolute terms, they have trended wider.
It appears the premiums and discounts for high and low prices have been more stable in absolute terms. However as the base price has risen, the premiums and discounts have fallen as a proportion of the base (median) price level. For processors, the price effective differential remains whereas for farmers the price differentials have declined in importance.
Key points
* In proportional terms, the range of price within micron categories has trended smaller during the past two decades.
* In absolute terms (c/kg) the range of prices have been more stable.
* From a producer point of view, the range of prices due to different wool characteristics has become less important, as the base prices have increased.
What does this mean?
In the late 1990s staple strength was a big issue for Merino producers in terms of pricing wool and there was a flow-on effect to breeding objectives. In the late 1980s staple length was a big issue in pricing. The importance of these factors in the pricing of Merino wool has decreased in proportional terms. Changes in supply for particular characteristics will be reflected in changed premiums and discounts however it appears the supply chain value of greasy wool characteristics is set in absolute terms rather than relative terms. When setting breeding objectives wool producers should keep these trends in mind.
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