Farm Tender

Mecardo Analysis - Fine Merino seasonal supply patterns

 By Andrew Woods | Source: AWEX, ICS.

The wool auction system is both a transparent price discovery system and a giant blending machine, as exporters construct mill consignments from individual grower lots, a point often missed by commentators. To put mill consignments together efficiently requires an adequate supply of the appropriate wool types. With that in mind, this article takes a look at the seasonal pattern of 18 micron and finer wool.

While the overall volume of Merino wool has been falling this season, the supply of fine wool has held up due to the seasonally induced swing to finer microns. Figure 1 shows the median monthly sales volume (in clean metric tonnes) of 18 micron and finer wool in Australia for the past six seasons, with the current season volumes to January overlaid. It shows current season volumes to be on par with the median levels of recent years.

The overall volume encompasses all sorts of wool from carding stains to the very best spinner styles, which appeal to different end markets. Figure 2 shows the proportion of the volumes shown in Figure 1 which were Eastern Australian Merino fleece wool from 65 to 95 mm in length, with a staple strength of 39 N/ktx and greater, with no subjective faults, all “P” certificates, vegetable fault 2% and less, a yield greater than 65% and no mid-point breaks above 80%. This is a rough measure but the idea is to extract a reasonable idea of the proportion of wool which is “top end” in terms of quality. As Figure 2 shows, in the spring, some 12% to 18% of fine wool meets these criteria, falling to around 7% in the autumn.

2019-02-19 Wool 1 2019-02-19 Wool 2

Figure 3 shows the monthly median volumes for the wool defined for Figure 2, for the past six seasons. It shows a strong seasonal skew in supply to the spring and into February (keeping in mind December and January sales are interrupted by the Christmas recess). There is a definite off-season from March to July, when only about 400 tonnes of the better fine wool is sold per month. For exporters wanting to put consignments together, February is the last chance before the “off-season” in supply begins.

In Figure 3 the current season’s supply of better fine wool has been overlaid. Note how since September, the supply has fallen well below the six-year median. While the overall supply of fine wool has been holding up, the quality has not, and those mills seeking the better specified Merino fleece are finding supply down by 20-30% in recent months.

Non-mulesed wool demand is growing and demand at auction is active. Figure 4 filters the better fine wool volumes down again by limiting them to CM-NM declared lots. The seasonal supply of this wool is very heavily skewed to the spring, with a second burst of supply in February. Anyone seeking supplies of this wool will be very active in February as the supply falls away to low levels from March through to August.

2019-02-19 Wool 3 2019-02-19 Wool 4

Key points
   * The supply of 18 micron and finer wool is fairly even throughout the season after allowing for recesses in auction sales.
   * Better fine wool volumes account for 12% to 18% of fine wool sales in the July to February period, dropping to low proportions in the autumn.
   * In clean volume terms, the supply of better fine wool has fallen below the median levels of the past six seasons by 20-30% in recent months.
   * The supply of CM-NM better fine wool is highly concentrated to the September to February period.

What does this mean?
The supply of better fine wool falls away after February, so exporters seeking volumes of this wool will be active this month while the supply is available. The fall in supply since September of better fine wool volumes will accentuate buying this month before the supply falls away. In recent seasons, the supply of CM-NM better fine wool has been even more concentrated in the spring and February period. This points to being wary of holding physical wool, which has good specifications, into the autumn.