Mecardo Analysis - Drought patterns in wool specifications
- By: "Farm Tender" News
- Ag Tech News
- Mar 21, 2019
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By Andrew Woods | Source: AWEX, ICS.
This article is bought to you by Mobile Plunge Dipping Services.
This article is bought to you by Mobile Plunge Dipping Services.
Wool market commentary appears to mention wool quality or selection a lot at present. The implication is that poorer wool quality makes it harder for exporters to construct their required mill consignments, with more poor quality wool spilling into lower value contracts. This article takes a look at some of the key measured wool qualities in the Australian greasy clip within a drought perspective.
Wool quality can be affected by both wool characteristics and preparation standards. In this article, we will focus on tested wool characteristics. In Figure 1 the monthly average yield for wool sold in eastern Australia is shown for 2002 (starting in January of that year and running forward for 18 months to mid-2003), 2006, 2018 and plus the five year median level to mid-2017. 2002 and 2006 are chosen because they are key drought years, while the five year median is added as a guide to what is “normal”.
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It turns out that the overall average yield for 2018 is tracking the pattern set in 2006 quite closely. This is well below the five year median to 2017, which makes sense, as seasonal conditions were generally better (although not for Victoria) in those years. The drought and non-drought patterns show that yield should fall until around April (next month) before finding a base. The exact timing will depend on rainfall. This shows us that we can expect yield to fall further yet, by up to a couple of percentage points, in the short term. Lots delivered to sale with very low yields will have to wait until rain has fallen, and then some months, before the supply begins to ease.
Figure 2 shows a similar analysis for vegetable matter (VM) in eastern Australia. Logic would suggest that VM is highly correlated to drought through a lack of pasture leading to a lack of vegetable matter in the wool. Figure 2 shows that the story is not so straight forward. The VM level in 2018 has been generally well above the rolling five year median levels, also above the levels of 2002 but below 2006 levels. VM levels tend to be more correlated with pastoral region rainfall and is sensitive to rainfall some 12-24 months prior to when it is tested. This means the dry conditions of 2018 will show up in wool specifications from late 2019 onwards, into 2020.
Finally in Figure 3 staple strength is examined for the eastern clip. Staple strength is a function of changes in the diameter of the wool fibre along its staple. As a rule, as pasture conditions gradually tighten going into a drought, staple strength is maintained. Figure 3 shows staple strength generally easing late in the calendar year, but that is a general seasonal pattern. The risk to staple strength is coming out of drought when pasture conditions start to vary. That means the risk to staple strength from the dry 2018 and early 2019, is in late 2019.
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Key points
* Yield is following the standard drought pattern and we should see yields fall further in the short term.
* Vegetable fault has remained relatively high through 2018. The effect of 2018 will show up in late 2019 into 2020 in the form of low VM levels.
* Staple strength does not have a particular drought pattern, but there is strong risk of low staple strength in late 2019 from (hopefully) autumn and winter rains in the next couple of quarters breaking the drought.
What does this mean?
The selection quality of wool at auction will worsen at least for the next month or so, with discounts for very low yielding wool increasing in response to supply. Staple strength is not really an issue at present in the market (beyond normal levels) but there will be some risk of lower staple strength late in 2019 (something to be kept in mind for anyone considering a forward contract which specifies staple strength). VM levels will fall for the next 12-18 months and will not be a significant factor for most lots in terms of wool pricing.
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