Mecardo Analysis - Fine merino wool price structure – what’s going on?
- By: "Farm Tender" News
- Ag Tech News
- Nov 15, 2018
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By Andrew Woods | Source: AWEX, ICS.
As fine wool prices have fallen in recent months, comments have been made about better style fine wool with attributes such as being non-mulesed holding their value. This leads to the hope that the better part of the fine wool market is bucking the downward trend in price. This article takes a look at this issue.
It is always tricky to isolate wool prices in order to quantify price premiums and discounts. The reason for this is that there are a lot of factors influencing price from physical characteristics (fibre diameter for example) to logistics such as the time of day sold to non-physical characteristics such as mulesing status. Pricing for these various factors is further complicated by the focus of the buy side on consignment averaging of price (to meet consignment limits), rather than lot to lot pricing.
As a way of cutting through the “noise” in the market, a high (95th percentile), median and low (5th percentile) price has been calculated for fine micron categories on a monthly frequency. The high and low prices are then compared to the median price.
Figure 1 shows such a comparison for 15 micron wool (all lots in) for the past decade up to this month. The median price is taken as a representation of the general level of 15 micron prices. If the top end of the 15 micron market is holding its value while the general market falls, then the premium for the 95th percentile price should widen. Figure 1 shows the opposite. Since July the premium for the 95th percentile to the median price has shrunk.
What about the other way – are low prices falling away more? The discount for the 5th percentile has widened markedly since August (going from a 32% to 52% discount). Given the fall in cardings this makes sense as cardings would make up the lower price cohort for the micron category.
Figure 1 shows that the top end of 15 micron prices have fallen in recent months in relation to median prices. Increased supply is most extreme for the 15 micron and finer categories, which would explain this weakness in premium. The top end of the 15 micron market is following the general trend. Discounts for the bottom end of 15 micron prices have widened as the cardings have plunged in relation to combing wool prices.
Figure 2 repeats the exercise for 16 micron wool. It is the same story for the low percentile rank prices. High percentile rank 16 micron prices have maintained their premium to the median price, so they will be still falling but at the same rate as the general 16 micron market.
Figure 3 repeats the exercise again for 17 micron wool. The top end of 17 micron wool prices have maintained their premium (so they are still following the market lower) while the bottom end has weakened but not be as much as the 15-16 micron categories.
Key points
* “Top end” prices for 16-17 micron wool are falling in line with the general price levels for these micron categories.
* “Top end” prices for 15 micron have weakened in relation to the median 15 micron levels reflecting a big increase in supply for 15 micron wool.
* “Bottom end” prices for 15-17 micron wool have raced the general price weaknesses in these categories, with discounts widening in recent months.
What does this mean?
Quality is not protecting the better fine merino wools from the falling market. They are tracking the general market lower, or in the case of 15 micron falling faster as their premiums shrink in response to a doubling of the 15 micron wool supply in recent months. Discounts for the lower priced 15-17 micron lots have widened so these lots are racing the market lower, which makes sense as cardings will be well represented in the lower priced lots.
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