Mecardo Analysis - Snapshot of Australian woolclip quality
- By: "Farm Tender" News
- Ag Tech News
- May 28, 2019
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By Andrew Woods | Source: AWEX, ICS.
Connecting an industrial supply chain to an extensive agricultural production system throws up some challenges, with the inevitable variations in extensive agricultural production in terms of quantity and quality. With this in mind, this article provides a snapshot of the current quality in the Australian woolclip.
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Overall, processors set their requirements within the context of what the greasy wool market is likely to supply. For the supply chain quality (and quantity) becomes an issue when supply does not match expectations. Usually these surprises are driven by changes in supply.
Quality comes in many guises in the greasy wool market, often as a combination of specifications. The TEAM formula first developed in the 1980s (View here) was designed to allow topmakers to use multiple greasy wool measurements to help predict wool top outcomes. Figure 1 shows the average monthly staple strength of the Australian clip from 2005 onwards, overlaid with a rolling five year median of the staple strength. It shows the current staple strength is close to 35 N/ktx and nearly matching the rolling five year median level, after being at low levels in late 2018 and early 2019. Staple strength is not an issue in the current market.
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Figure 2 shows the monthly point of break in the middle (MPB), along with its rolling five year median level. Unlike staple strength which has a well-defined seasonal pattern, the variation in MPB is more intermittent. After being high in early 2019, the MPB has dropped to a relatively low level. A low MPB in tandem with a “normal” staple strength pushes these combined specifications into a favourable position for processors.
Now to specifications which are not at normal levels. Firstly merino fibre diameter, which is shown in Figure 3. Mecardo has discussed the effect of fibre diameter on supply in many articles. While the fibre diameter has increased since February, it remains a good half a micron below the rolling five year median and is still running at 0.3 micron lower than last May.
The specification causing the greatest concern in recent months has been yield. Figure 4 shows the average yield for the Australian clip from 2005 onwards. The yield has fallen well below the rolling five year level, down to levels last following the 2006-2008 run of dry years, which makes sense. The low average yield makes it difficult to put together consignments with standard yield averages (typically in the mid-60s and higher for fleece). Wool scours have had to change their procedures to accommodate the lower yields.
Key points
* Fibre diameter and yield are both well below expectations in the current Australian wool clip.
* Staple strength is at its rolling five year median level and point of break in the middle has fallen to low levels (which is good for processing).
* Yield tends to reach its lowest point for the season in May, so while the actual yield is lower than planned for, the timing is about right.
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What does this mean?
The wool auction system is both a transparent price setting mechanism and a blending system. The latter feature is forgotten in some of the criticism made about the “old fashioned” nature of the auction system. Exporters adjust the relative prices for wool characteristics in real time as they buy wool to build consignments. When the supply of a wool specification varies from its expected levels, relative prices are adjusted accordingly. In the current market the supply chain is dealing with both a lack of broad merino wool and a surfeit of low yielding wool. For low yielding fleece this has meant pieces type prices. Some relief to the excess of low yielding wool will come in the next few months as the seasonal pattern helps pull the average yield higher, taking some of the pressure off discounts for these types.
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