The structure of the greasy wool market has changed a lot during the past four decades, as farmers have responded to price signals which in turn have been responding to changes in demand. With this in mind Mecardo looks at price and volume for 16 micron wool during the past two decades.
From the perspective of supply the market for fine merino wool has changed dramatically during the past two decades. Figure 1 shows full season total volumes (in farm bales) for 16 micron wool tested by the AWTA from 2000-2001 to 2021-2022. It shows volume rising from less than 10,000 bales per season to between 60-80 thousand bales since 2013-14. This change in volume means that prices and more specifically micron premiums seen in 2000-2001 for fine merino are likely to be unattainable in 2022, as supply has increased so markedly.
So flesh out the latter point made above, Figure 2 shows month average prices for 16 micron combing fleece and the total monthly volume sold at auction for 16 micron combing fleece from July 2000 to this month. Price is denoted by the line and refers to the left hand vertical axis with volume denoted by bars and referring to the right hand vertical axis. In 2018 the 16 micron price did back to within a cooee of the 2000-2001 levels, despite volume being seven to eight times larger.
Supply changes in the greasy wool market generally have their effect on relative prices within the market, rather than on outright price levels. The reason for this is that the supply chain is forever perusing the supply of wool and thinking about the best margin combination which can be used, and adjusting when opportunity presents itself (surely there is opportunity with crossbred prices at current levels) or costs become too great. On the latter point, fine merino premiums have been relatively stable at high levels through 2022. History shows that these premiums tend not to stay at such elevated levels indefinitely.
Figure 3 repeats the structure of Figure 2, replacing the 16 micron average combing fleece price with the premium for the 16 to 21 micron average combing fleece. In this schematic the effect of volume becomes clearer, with the premiums seen in 2000-2001, when volumes were low, around double that seen in 2011, 2018 and 2021-2022. This is why using premiums from 20 year ago as a guide to possible price in the current market is not a good idea, as the underlying structure of the market has changed greatly.
What does it mean?
Wool market reports often will say that prices for the best fine wools have held but prices for poorer quality types have eased, which is happening currently. Demand is being weakened by economic and geopolitical prices in the major economies. As demand shrinks, the most vulnerable wool prices are fine merino where the premiums remain at very high levels. Demand is shrinking for the poorer fine merino types firstly, but even the better fine merino types remain at risk of lower price levels as the spring progresses.
Key Points
- In price terms the 16 micron average combing fleece price is and has been high by historic standards.
- More importantly, in relative terms the 16 micron premium has been at it highest level since early 2002, when the supply of 16 micron wool was quite low.
- A combination of high price and premiums makes the 16 micron price vulnerable to any weakening in demand.
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Click on figure to expand
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Data sources: AWTA, AWEX, ICS, Mecardo.
