Mecardo Analysis - Ultra fine wool prices

This article is bought to you by Victorian State Marnoo Merinos Field Day and Elmore Compost.

By Andrew Woods | Source: AWEX, ICS

Key points

· 12 and 13 micron prices traded at extraordinary premiums to the general Merino market in the decade to the GFC in 2008-9.

· Following the GFC, prices for these ultrafine categories did not recover their old, high price levels.

· The price ratios of the ultrafine categories to the 19 MPG collapsed around 2013 and have not recovered.

Ultrafine wool production and prices have never recovered their pre-GFC glory, although a fair proportion of this wool is sold privately so information on price and supply is scarce at the very edge of the micron distribution. This article takes a quick look at 12 and 13 micron prices during the past two decades.

Figure 1 shows the monthly 95th percentile price for 12 and 13 micron wool sold at auction from 1997 to this month. The 95th percentile is used as a filter to focus slightly below the very best prices, where there is sufficient volume to allow a range of prices to be made. In recent years, it is a simple way of filtering the data to focus on the best fleece prices.

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The 13 micron series has appreciably more data, while the 12 micron series runs out of volume hence price in recent years. Prices in Figure 1 (shown in hundreds of cents per clean kg) rose from the late 1990s, peaking in the 2006-7 and 2007-8 seasons, around $372 per kg for 13 micron and around $700 per kg for 12 micron. During the Global Financial Crisis (GFC) in 2008-2009, prices fell as they did for most commodities. However, compared to the pre-GFC price levels, prices for 12 and 13 micron wool did not recover.

In Figure 2 a similar format is shown to Figure 1, with the median prices for 12 and 13 micron shown. The median price will be more affected by changes in the quality of the wool offered. Arguably the 13 micron median price range traded from around 2000 to 2009, before being crunched by the GFC.

In the period to 2009, ultrafine prices were in a class of their own. Figure 3 shows the ratio of the median prices (from Figure 2) for 12 and 13 micron to the 19 MPG. From 2000 to 2009, 13 micron traded at 10 to 20 times the level of the 19 MPG. The median 12 micron price traded from 20 to 56 times the 19 MPG. In the 2010 to 2012 period, the 13 micron ratio fell to a sedate 2.6, then slid further to range between near parity (keeping in mind the median 13 micron price in recent years includes cardings and non-fleece wool) up to 1.6. In 2018-19 the median 13 micron price traded at a ratio of 1.26 to the 19 micron. It was a tough year all round for fine Merino premiums last season.

What does this mean?

The old saying that "nothing cures high prices like high prices" seems to have played out for the ultrafine wool categories. High prices can work on two levels, supply and demand. Mecardo will explore the supply response to these high prices, for which we have excellent data. On the demand side, things are less clear. However, price ratios of 50, which the 12 micron auction prices were reaching on the 338 clean kg of wool sold at auction in 2004-5, would seem to be and have proved to be hard to maintain. In the early days, manmade fibres traded at premiums to wool. The lesson here seems to be that price levels for a developing market need to be treated as "in development". The technology curve, or price learning curve, shows that industries learn to drive prices lower with time and increased production.

www.mecardo.com.au

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