Mecardo Analysis - Sub-17 micron Merino prices

By: "Farm Tender" News
Ag Tech News
Jun 27, 2019
528 views
Share

This article is bought to you by MAXI-FEEDER.

By Andrew Woods | Source: AWEX, ICS

After looking at broad crossbred prices earlier this week it seemed sensible to swing to the other extreme and look at merino prices for micron categories finer than the AWEX MPGs cover.

Wool production falls quickly once the fibre diameter moves below 14-15 micron. Figure 1 shows the average price and the volume of 13 micron wool sold by quarter from mid-2004 to the current (unfinished) quarter. In an occasional big quarter, around 10,000 clean kg will be sold (around 85-90 farm bales), with the normal volume in the 1000 to 4000 kg range, so this is a specialty fibre within the wool “family”. The small volumes mean that farm stocks can significantly alter supply either by holding wool back from market or boosting sales volumes. The 13 micron price fell during the 2008-2009 financial crisis (as did all commodities) but in the past decade it has not recovered its old levels. This will be partly due to increased supply.

Ad - MAXI-FEEDER Hay Feeders are the best on the market. Check them out here - Ad

The 14 micron category (shown in Figure 2) has a different story to 13 micron. Prices jumped to high levels in 2007-2008 and then fell back to pre-2007 levels. Supply has trended higher during the past decade, with the wet years of 2010 and 2016 showing up as reduced supply. Since 2009, the two price peaks in the 14 micron category correspond to the major peaks of the main Merino market – 2011 and 2018. Since early 2018 the average 14 micron price is down by 26% with supply rising substantially during this period.
2019-06-27 Wool 1

Price patterns for 15 micron strongly reflect the general merino price cycles, with significant peaks in 2011 and 2018 as shown in Figure 3. The effect of wet years in 2010 and 2016 show up more clearly in the supply of 15 micron wool, with supply falling in the following seasons. Note how these falls in supply also correspond with rising prices. For fine Merino wool to enjoy a very strong price cycle it needs three factors to be operating. These are a general rising price cycle, a fashion focus on fine merino wool and falling supply (usually due to wet seasons). In 2011 and 2017-2018 the general rising price cycle which was lifting the 15 micron price was boosted by falling supply.

Ad - MAXI-FEEDER Hay Feeders are the best on the market. Check them out here - Ad

16 micron is shown in Figure 4 and it has a similar story to 15 micron. The effect of the 2010 and 2016 seasons stand out, with supply appreciably falling. A simple trend line drawn across the supply of 16 micron shows a strongly rising trend during the past 15 years. However, supply since around 2014 looks to have levelled off. The current supply is boosted by drought. In addition, fine wool premiums have been trading at low levels since 2012, with relief coming in 2017 and the first half of 2018. This means that premiums have been low in proportional terms for seven out of the past nine years. Grower reaction to such an extended period of low premiums seems likely in the coming decade. At best that points to stable supplies of 16 micron (and finer) wool or more likely a decrease in supply.

2019-06-27 Wool 3

Key points

* The 13 micron category is part of the wool “family” but volumes are very small and in terms of price, it has not really followed the lead of the general Merino market in the past decade.

* From 14 to 16 micron the categories increasingly reflect the general cycles seen in the main Merino market, as the fibre diameter increases.

* Rising supply has put a dampener on prices for sub-17 micron wool since mid-2018.

* There is a question about whether the rising trend in supply for sub-17 micron wool seen during the past couple of decades will persist given the small price premiums since 2012.

Ad - MAXI-FEEDER Hay Feeders are the best on the market. Check them out here - Ad

What does this mean?

Just as decreasing supply can help boost fine wool prices/premiums in a general rising price cycle for wool, falling production would help soften a general down cycle, which looks to be in place. More rainfall this coming spring than last spring in the eastern Australian non-pastoral regions would deliver this in 2020. Looking further forward the effect of low price premiums for five and a half years out of the past seven, seems likely to spark farmers (on average) to focus away from sub-17 micron wool. That would be positive for fine Merino premiums in the coming decade.

www.mecardo.com.au