Mecardo Analysis - Short fleece wool supply still on the rise
- By: "Farm Tender" News
- Ag Tech News
- Jan 22, 2019
- 545 views
- Share
By Andrew Woods | Source: AWEX.
Greasy wool premiums and discounts fluctuate primarily in response to changes in supply. Supply usually has a strong seasonal cyclic component, along with multi-year trends which are stimulated by changes in relative prices for different wool types. This article is a quick update on the supply of short staple (“prem”) merino fleece.
Mecardo last looked at the supply of prem fleece wool in August, showing how the South African merino clip is quite short by Australian standards. The South African clip is about half the size of Australian 50 and 60 mm length merino fleece wool production, so there is a relatively plentiful supply of shorter staple merino wool around the world.
Figure 1 shows the annual proportion of merino fleece wool sold which is 50-69 mm in length for the 19.5, 21 and 22.6 micron categories. The proportion of shorter fleece wool in the broader micron categories started to lift around 2011, while the proportion for 19.5 micron only started around 2016. Within these seasonal totals there is quite a strong seasonal pattern.
Figure 2 shows the quarterly proportion of 50-69 mm length fleece wool sold since 1996 for 19.5 micron wool, as well as the year on year change in this proportion As a rule, the proportion peaks in the June quarter and reaches a minimum in the September quarter. It also shows the proportion of prem fleece wool for 19.5 micron dropped after 2002, and stayed low through to 2016.
Figure 3 shows a similar pattern for 21 micron fleece wool. The rise in the proportion of prem fleece wool sold in Australia has been very strong and continues to rise. 21% of 21 micron sold in the June quarter of 2018 was 50-69 mm long, and the supply looks to be on target to exceed that proportion in 2019. The overall drop in total broad merino volumes will help limit the absolute rise in prem volumes (in metric tonnes) but the proportion of wool sales looks set to be higher and this will put pressure on the discounts for shorter staple length.
If the rise in the prem proportion of 21 micron fleece wool has been strong, then the rise for 22.6 micron has been spectacular. In the June 2018 quarter 30.5% of 22.6 micron combing fleece wool sold was 50-69 mm in length. The prem proportion is continuing to rise, so new highs are likely this year.
Key points
* The trend to increased proportions of shorter length merino fleece in the medium to broad Australian merino clip continues.
* The pressure on short staple length discounts is likely to increase, especially in the peak June quarter supply period.
* Drought induced falls in the supply of broad merino wool are the wildcard for 2019 as the pressure of acute under supply may help support the relative prices for short length wool.
What does this mean?
Without the fall in broad merino wool brought in by drought, the increase in proportion of prem merino fleece would be expected to result in wider discounts especially in the June quarter when the supply peaks. In 2019 the continued under supply of broad merino wool may save the day. However continued rises in the proportion of short length fleece wool will reduce the supply of full length wool and, if not in 2019 then in later years, the relative prices of full length and short fleece wool will adjust to reflect the change in relative supply.
Share Ag News Via