Mecardo Analysis - Staple strength P&Ds in Merino fleece
- By: "Farm Tender" News
- Ag Tech News
- Nov 27, 2018
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By Andrew Woods | Source: AWEX, ICS.
In recent years, the effect of staple strength on Merino fleece prices has been muted. At the same time as the clip heads towards the Christmas recess when staple strength tends to reach a seasonal minimum, cardings have dramatically re-set their basis to combing wool prices, it is timely to check the effect of staple strength on Merino fleece prices.
The background to the Merino greasy wool market at present has three key components. There is a big oversupply of sub-17 micron wool, a massive undersupply of 20 micron and broader Merino wool and a very large re-rating of carding prices (lower) to combing prices. The latter component is demand driven, while the two former components are a function of dry seasonal conditions and are supply driven.
Figure 1 uses November auction sale data (to last week) for 16 micron Merino fleece wool with a staple length of 80 mm. It shows the relative prices for a range of staple strengths, compared to a base staple strength of 35-39 N/ktx. It shows a distinct preference for higher staple strength wool (nothing new there) with quite a sharp boundary for significant discounts starting as staple strength falls to the early 30s. The discount is in the order of 13-15% for lower strength wool which puts this wool in the general price bracket of 16 micron pieces.
Figure 2 repeats the exercise for 18 micron fleece 90 mm in length. The shape of the discount curve is more like the standard historical pattern expected, with discounts increasing as staple strength falls away and premiums increasing as staple strength increases above the base level. The premiums and discounts are smaller than for the finer 16 micron category.
Figure 3 repeats the exercise again for 19.5 micron Merino fleece. The premiums and discounts jump around a little more in this graph. This “noise” in the premiums and discounts calculated probably comes from a combination of three sources. Firstly the data is often incomplete, secondly, there can be timing issues especially in a month when prices traded across a wide range of price levels, and finally, exporters view the market through the prism of consignment averages while we view the market through the prism of sale lot prices. There is plenty of scope for prices for some lots to vary from their expected levels. In Figure 3 we read the discount for 20-24 N/ktx to be somewhere in the range of 3% to 5% rather than 1.5%. A discount of 3-5% is still quite small.
Finally, in Figure 4 the staple strength effect for 21 micron is shown. Note the scale on the vertical axis. The graph might look impressive for the 50-59 N/ktx strength premium but the axis shows staple strength is only pushing price around by +1% to -0.5%. This level of price variation is easily exceeded by price volatility in the market where swings of 4-7% have been common in November.
Key points
* Staple strength is effectively irrelevant for broad Merino prices.
* For medium Merino prices, the effect of staple strength in minimal.
* The effect of staple strength on price increases as fibre diameter decreases, with low strength 16 micron fleece priced at piece price levels.
What does this mean?
The undersupply of broad Merino wool continues to bunch broad Merino prices up, with little differentiation between varying levels of staple strength and staple length. At the other end of the fibre diameter distribution, an oversupply of lower quality wool is widening the discounts for low staple strength fine wool and seeing some bigger premiums for high staple strength. In the middle, medium Merino premiums and discounts for staple strength are fairly small.
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