Mecardo Analysis - Prem Merino fleece supplies trending up
- By: "Farm Tender" News
- Ag Tech News
- Dec 13, 2018
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By Andrew Woods | Source: AWEX, ICS.
Shearing at shorter intervals continues to be popular. Cardings prices are in the process of re-setting themselves at a lower price in relation to combing length wool (larger discounts in effect) after a great five year run of high prices/small discounts. Given this background, we look at the supply of shorter length Merino combing fleece wool and applicable discounts in this article.
First off, Figure 1 shows the annual supply of short length Merino combing wool (50-69 mm greasy length) as a proportion of Merino combing fleece volumes from the mid-1990s onwards. An estimate for the current season has been made using the data available to date. The proportion starts to rise in the 2015-2016 season and has trended higher in the three seasons since. In 2014-15 some 11% of Merino fleece wool at auction was 50-69 mm in length, whereas the estimate for the full 2018-2019 season is 17.3%. A point to note is that this also reduces the supply for full-length Merino fleece, at a time of severely constrained supply.
Within a season, there is a strong seasonal pattern of supply of shorter length Merino fleece. This is shown in Figure 2, which shows the monthly proportion of 50-69 mm length wool sold from mid-2009 onwards. A simple trend line has been regressed onto the data. Typically the proportion of short length fleece peaks in April (plus or minus a month) and reaches a low point in August. While the buy side of the industry will be well aware of this pattern and will have adapted to it long ago, the increased level of supply year on year is likely to continue the pressure on prices for shorter length fleece wool compared to full-length fleece wool.
What about discounts for short length fleece? This can be tricky to measure as other factors such as fibre diameter, vegetable fault and bigger fashion cycles (as exhibited by the booming cardings price of 2013-2018) can all significantly influence relative prices.
Figure 3 overlays an estimate of the average discount for 56-60 mm length 19.5 micron Merino fleece with low vegetable fault onto the monthly proportion of shorter length fleece wool shown in Figure 2. The discount shown has been smoothed (a rolling 3-month average) to iron out some of the noise in the data and is shown on the right-hand scale in cents per kg terms.
The first thing to note in Figure 3 is the significant decrease in the discount in 2013, which stayed at low levels through to 2017. The discount was a minimal 20-60 cents in this period (2-4% in proportional terms. At the seasonal peak in supply of short length fleece wool from 2016 onwards, the discount widened, so the implication is that the discount will widen again come mid-2019, especially given the supply of short length wool will be higher than in 2018.
Key points
* The rising trend in supply of short length Merino combing fleece continues.
* Discounts tend to widen on a seasonal view when the supply of short length wool peak, towards the June quarter.
* Expect discounts for shorter length Merino fleece to be at least on par with the discounts seen in the middle of 2018 in mid-2019.
What does this mean?
Farmers are good at responding to price signals and the increase in supply of short length Merino fleece since 2015-2016 fits with a delayed response to the minimal discounts for short length wool which started in 2013. The fashion cycle has turned, as it usually does, and discounts for carding length wool have reverted to pre-2013 levels. Short length Merino fleece discounts will have to contend with both this change in cardings price levels and a continued increase in supply in 2019, which should see discounts widen, especially in mid-2019.
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