Mecardo Analysis - Yield effect on merino fleece prices

By: "Farm Tender" News
Ag Tech News
May 02, 2019
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By Andrew Woods | Source: AWEX, ICS.

This article is bought to you by Pepperton Poll Dorset & White Suffolk Stud.

Greasy wool yields typically fall in the autumn, even more so in a drought season such as the current one. When a wool specification moves beyond its normal seasonal variation, processors take some time to adjust. Exporters however adjust their pricing in real time as they need to meet consignment averages. The consequence is that yield has become a more important factor in pricing. This article takes a look at the effect on merino fleece.

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Mecardo published an article in March, which showed the drought pattern in wool yields. Yield can be expected to reach a low point in April/May so the peak effect of yield on price is happening now. This effect is even more marked as fibre diameter, normally the major influence on price, is reduced in effect due to the flatter micron price curve.

Figure 1 shows the effect of yield on full length eastern merino fleece prices in the week before Easter for three levels of staple strength. The yield varies across the horizontal axis from 51.5% to 78.5%, with 69.5% yield used as the base reference point. The three staple strength levels shown are 40 plus N/ktx, 35-39 N/ktx and 30-34 N/ktx. It shows that yield has the biggest influence on the higher staple strength, with the high yield, high strength merino fleece price 80-100 cents (clean) above the base level. When the yield falls below 60% the discount to base starts around 80 cents and increases as the yield drops further. For the lower staple strength level the effect of yield is much less clear.

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In Figure 2 the analysis is repeated for Fremantle, with a lower 66.5% yield used as the base reference level. The staple strength is lower as well, ranging from 35-39 N/ktx down to 25-29 N/ktx. There is a consistent pattern of significantly higher prices for the higher yield and discounts for lower yields, although it is less clear for the 35-39 N/ktx strength wool (smaller volumes).

2019-05-02 Wool 1

Key points

* In eastern Australia yield has the biggest price effect on the more valuable higher staple strength lots.

* The yield price effect is much less evident for the lower staple strength lots, which are blended more with pieces and bellies.

* In Western Australia yield is showing up an effect for the core merino fleece categories.

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What does this mean?

Yield is a topic of discussion in the wool processing mills in China, as they have struggled to catch up by changing scouring processes to match the drop in greasy wool yields in Australia. Exporters are paying up to a dollar difference in price between 60% and 70% yielding merino fleece, although this price variation is different depending on the quality of wool. The effect of yield will recede in a couple of months as yields start to rise, in the meantime high yielding better strength merino fleece is being paid a considerable premium.

www.mecardo.com.au