Mecardo Analysis - Broad crossbred prices join the slump

By: "Farm Tender" News
Ag Tech News
Jun 25, 2019
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This article is bought to you by Forest Springs Merinos.

By Andrew Woods | Source: AWEX, RBA, ICS.

Greasy wool prices have been under downward pressure since February. Australian broad crossbred prices bucked this trend in April as they made a delayed catch up in price to the main crossbred categories, which had rallied strongly from late 2018. This article takes a look at what has happened to the micron categories broader than 32 micron.

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After a delayed pick up in prices in April, broad crossbred prices in Australia have fallen. Weakness in the demand for greasy wool prices is spread across all categories at present. Figure 1 shows the micron price curve (simple average prices for crossbred combing fleece by micron from 20 to 36 micron) for this month (to date) and for June 2018. Prices for crossbred under 27 micron are lower this year, while prices for 28 to 33 micron are higher.

The reason for the fall of the finer crossbred categories looks to be primarily a similar fall in Merino prices, aided by relatively more supplies of fine crossbred wool. The supply of 23 and 25 micron crossbred combing wool was higher in the March to May period compared to year earlier levels. In contrast, the supply of 28 micron crossbred combing fleece was down 33% in the March to May period, with 29 to 30 micron down by 49%. Undersupply was a significant factor in helping lift the main Australian crossbred category prices compared to year earlier levels. The supply of broad crossbred (broader than 32 micron) was also down in the March to May period, however, the price performance was mixed, with 33 and 34 micron prices higher than year earlier levels and 35 and 36 micron lower.

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Figure 2 shows a time series for the 34 to 36 micron average Australian crossbred fleece prices from the mid-1990s to this month (to date). The April spike in price shows up best for 34 micron, with lesser rises for 35 and 36 micron. Since April the 35 and 36 micron prices have lost most of the rise while the 34 micron is holding at a level higher than most since early 2017.

2019-06-25 Wool 1

As crossbred wool comes from a wide range of regions around the world, the US dollar price shows a more representative price series. Figure 3 shows the Australian 34 to 36 micron prices series in US dollar terms from the mid-1990s to this month. Recent price moves in US dollar terms are similar to the those seen in Australian dollar terms in Figure 2, except that in US dollar terms the 35 and 36 micron prices have fallen to the low side of their price range traded in since late 2017 and before that between 2002 and 2010. In US dollar terms, the 2011 to 2016 period stands out as an aberration and the current price levels as the norm, which is concerning.

Key points

* Supply has been a factor in influencing crossbred prices, as it has been for Merino prices.

* 34 micron prices, while well down on April levels, are holding at the best levels seen from early 2017 to March 2019.

* In US dollar terms the 34-36 micron price levels are trading roughly within their trading ranges of the past 2 years and the 2002-2010 period (34 micron at this high end and 35-36 micron at the low end).

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What does this mean?

The US dollar time series graph shows us that current price levels for 34-36 micron crossbred fleece are trading at levels the market is “comfortable” with. The boom crossbred prices of 2011 to 2016 have come and gone, with prices reverting in 2017 back to levels trading at in 2002 to 2010. A lower Australian dollar could help boost prices at auction, but in the bigger picture current US dollar price levels are what can be expected until manmade fibre prices lift significantly or fashion swings into using crossbred prices as it did in 2015.

www.mecardo.com.au