Mecardo Analysis - South African wool volumes in perspective
- By: "Farm Tender" News
- Ag Tech News
- Feb 21, 2019
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By Andrew Woods | Source: AWEX, Cape Wools, ICS.
Prices in the Australian greasy wool market have jumped strongly this week, at the same time as South African wool auctions have been suspended in view of Chinese issues with the foot and mouth outbreak in South Africa. This article looks at recent South African volumes in relation to Australian volumes, to give some perspective on how the temporary absence of South African wool should influence wool prices.
Cape Wools (http://www.capewools.co.za/) supplies regular reports on South African wool sales. Figure 1 uses volume data from their report last week and compares it to Australian volumes. It shows the volume in farm bales for four micron categories. Less than 19.1 micron is the big category for Australia (19,983 farm bales), while the 20.1-22 micron category is the big category for South Africa (4,729 farm bales). The South African volume for 20.1-22 shades the Australian volume by 364 bales or 8%. On the surface, this looks to be a severe drop in volume for 20-22 micron wool, at a time of severe under-supply in Australia. The dollar rise in price on Tuesday makes sense from this perspective.
The South African wool clip has a short staple length compared to Australian wool (Prem wool supply August 2018) so we need to look more closely at the specifications of the wool supplied by South Africa. Figure 2 shows the volumes of wool 75 mm and longer which was offered in Australia and South Africa last week, in the same format as Figure 1. The volume of South African wool falls away, although the South African 20.1-22 micron category still supplied about 29% of the combined South African and Australian supply. The South African volumes for the other micron categories were inconsequential.
Figure 3 compares the volume of wool with a greasy staple length of 55 to 75 mm. For this category, South Africa exceeds the Australian volumes for 19.1-20 and 20.1-22 micron. South African volumes for less than 19.1 micron remain inconsequential.
Finally, Figure 4 repeats the analysis for wool less than 55 mm in length. For this length wool, South Africa was the dominant supplier last week for 19.1 to 22 micron.
So what does the data tell us? It shows that the reaction by an already chronically undersupplied broad Merino combing market makes sense, without telling us whether the dollar jump in price is an appropriate size change. The data shows that the supply of shorter length combing wool and cardings in the 19 to 22 micron categories will be severely affected while the South African auctions are in suspension. Any price effect for these categories will not be reflected in the Australian MPGs which focus on the full-length types.
Key points
* South African auctions have been suspended while issues regarding wool exports and the foot and mouth outbreak this year are sorted out.
* Last week South Africa accounted for about 29% of the total supply of full length 20.1-22 micron wool, so this micron category has had a significant cut in supply for the short term.
* Most of the South African wool is short in length so the biggest effects on supply are for Australian wool less than 75 mm in length and between 19.1 and 22 microns.
What does this mean?
In relation to Australian wool production, South Africa is a sizeable producer for short length, broader Merino wool. For 19 micron and finer wool, South African volumes are inconsequential. The sudden removal of the broader South African wool compounds an already chronically undersupplied Australian market so an increase in price this week makes sense. It should also help shore up prices for the shorter length broad Merino types.
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