Mecardo Analysis - A review of short staple fleece prices during the past two decades
- By: "Farm Tender" News
- Ag Tech News
- Aug 14, 2018
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By Andrew Woods | Source: AWEX, ICS
Recent articles by Mecardo have shown the big increase in the supply of shorter staple merino fleece in recent years for the broader micron categories. This article takes a look at relative prices for shorter staple length fleece wool in relation to the average price for 80-100 mm long wool.
In 2013 the Merino Cardings indicator rose in relation to combing prices to high levels by the standards of the previous decades. The high relative price was held in 2014 and then rose to unprecedented levels in 2015. This brief background is given to help understand the wider picture behind Figure 1. In Figure 1 the 21 micron price basis (mainly discounts) for short staple fleece relative to 80-100 mm length fleece prices for the past two decades is shown (*note the 2018 data covers only July and August data to date).
Price differentials are shown for four staple lengths (51-55 mm, 56-60 mm, 61-65 mm and 66-70 mm) in Figure 1. The basis (price difference) for the different staple lengths narrowed markedly around 2013 and 2014, which matches the experience of the Merino Cardings indicator mentioned above. Note however that the basis for the three shorter staple lengths has tended to widen again in recent seasons, which corresponds to increase in supply. It is early days yet, but it seems a reasonable conclusion to hold at this point is that prices are adjusting to more supply by increasing their discounts.
In Figure 2 the relative price analysis is repeated for 19 micron merino fleece wool. The trend to smaller discounts for shorter staple length wool, which has been in place for the past two decades, shows up clearly. The supply of short staple fleece has not picked up by much in recent years. While the discounts for short staple fleece have steadied in recent years (at small levels) there is no clear widening, which fits with a lack of increased supply.
Finally, Figure 3 repeats the exercise for 17 micron fleece. Note that the 66-70 mm price differential is more often than not a small premium (in the past decade), reflecting the appetite for shorter staple wool in the fine merino market. Discounts for 50-60 mm length wool have trended smaller in the past couple of decades, steadying in recent years at small levels.
Key points
* Discounts for short staple wool have trended smaller during the past two decades for 17-19 micron wool.
* For 21 micron wool, discounts for short staple wool have been more stable.
* Discounts for short staple 21 micron wool narrowed markedly in 2013-2015 but look to have started to widen again in the past couple of seasons.
* The recent increase in 21 micron discounts correlates with increases in the supply of short staple broad merino wool.
What does this mean?
Despite criticisms about the “old nature” of the greasy wool market, it is very efficient at adjusting relative prices in response to changes in supply. Keep in mind that exporters and mills look at the market from the perspective of mill consignments, not individual farm lots. As a result, they look to mix and match farm lots in order to meet both wool specification and price targets. The market seems to be adjusting relative prices for broader merino short staple wool by increasing discounts in response to increasing supply. This should be taken into account when budgeting.
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