Mecardo Analysis - Short length “prem” merino fleece supply and price
- By: "Farm Tender" News
- Ag Tech News
- Apr 16, 2019
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By Andrew Woods | Source: AWEX, ICS.
This article is bought to you by Glendemar MPM.
It is the June quarter, which is the peak time for shorter length (“prem”) merino fleece, in particular 20 micron and broader prem fleece. This article takes a look at the supply and then looks at the relative price for these shorter length categories.
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Figure 1 shows the proportion of 19.5 micron merino fleece (0-2% vegetable matter) wool sold by quarter (3 months) since 2007 which had a greasy staple length of 50-69 mm (left hand axis). Overlaid onto Figure 1 is the price discount (normally) for a shorter length (61-65 mm) fleece compared to a standard 90 mm length fleece. The shorter length fleece does have a higher staple strength (40-49 N/ktx) than the full length 90 mm fleece (33-37 N/ktx). The price effect is shown on the right hand axis.
The proportion of short length 19.5 micron fleece has been rising since 2015. Prior to 2015 it spent most of the time in the 8% to 10% range. In recent June quarters the proportion has risen to 18%, and for the first couple of weeks for the current June quarter it is running very close to 20%.
The 19.5 micron discount for the shorter length merino fleece trended lower from 2007 through to 2015, in line with the general decrease in carding discounts during that period. Since 2015, the discount has increased, although the discount remains relatively small in the 2% to 5% range.
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In Figure 2 the analysis is repeated for 21 micron merino fleece. Prior to 2015, the proportion of short length fleece sold was generally in the 5% to 10% range. Since 2015, the proportion has trended sharply higher, and is currently running at 24% for the first couple of weeks of the current June quarter. In absolute volume terms short staple volumes were down by 22% in the March quarter compared to year earlier levels while full length volumes were down 37%. Under-supply is an issue for all length 21 micron fleece, if not evenly.
The price discount has been quite variable, although in recent years (since 2015) the varied proportion of short staple wool sold at auction has a reasonable positive correlation with the discount (an R squared of 0.4 since 2015). This shows that it is reasonable to expect discounts for shorter length fleece to increase when the supply increases. The seasonal pattern shows that the proportion reaches a minimum in the September quarter and a maximum in the June quarter.
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Finally in Figure 3 the analysis is repeated for 22.6 micron merino fleece, with a prem length of 61-65 compared to a full length of 100 mm. The proportion of short staple fleece has risen remarkably in recent years. It is running above 40% for the current quarter (albeit only two weeks in). As for 21 micron, in recent years the discount has varied in line with the variation in the proportion of short length fleece.
Key points
* The proportion of short staple merino fleece continues to increase for the 19.5 micron and broader categories,
* There is a strong seasonal pattern in the proportion of short staple length wool, with the minimum in the September quarter and the maximum in the June quarter.
* In recent years, the discount for shorter staple fleece has correlated to the proportion sold, especially for the broader micron categories.
What does this mean?
For the broader merino micron categories, where the highest proportions of short staple length wool is supplied, the discount applied in the market has varied in recent years in close correlation to the proportion. For budgeting purposes, this means the expected price discounts will be different according to the quarter the wool will be sold in (larger in the June quarter and smaller in the September quarter). If the proportion of prem wools continues to increase, we can expect the discounts to increase.
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