A closer look at grower held wool stocks

Wool bales

Since mid-2018, when apparel fibre prices peaked and started a down cycle, farmer greasy wool stocks have grown in Australia. An exact idea of the stock level is not available as farmers will have some wool on farm, and when wool does reach wool stores there is no official record of total wool held back from sale by farmers, although wool brokers will know stock levels in their stores. This article uses wool sales data to estimate wool stocks and looks at some specific micron categories.

As the introduction intimated, the stock levels shown in this article are estimates only, and do not take into account any wool held on farm or wool sold outside of the auction system. As of the end of March the calculated level of farmer held stocks was estimated to be around 264,000 farm bales, which is equal to 16% of AWTA volumes of the past 12 months.

Wool price levels in 2018 were remarkable in Australian dollar terms, and in US dollar terms a re-run of the 2011 price cycle. It is assumed farmer held stocks reached a minimum around mid-2018 after a run of 2-3 years of high and rising prices. As prices started to trend downwards, farmers started to pass wool in. With prices continuing to trend lower there was little incentive for farmers to sell the passed in wool.

Figure 1 looks at the 16 micron category. It shows the volume (denoted by the size of the circles) estimated to have been added to wool stocks by price level by calendar month, from July 2018 to March 2021. The graphic does not show months where stocks were drawn down. The weighted average price at which 16 micron wool was passed in was 2337 cents, which is the approximate current level of the 16 micron. An alternate way of looking at this is to calculate the proportion of wool passed in at price levels above current prices. For the 16 micron category some 37% of stocks were passed in at higher levels, meaning some 63% of stocks are worth more than when they were passed in.

In Figure 2, the exercise is repeated for 19 micron (the big merino category in Australia). It shows a different picture to 16 micron where the average passed in price for 19 micron is 1840 cents, which is 160 cents above current levels. There is some respite for holders of 19 micron stocks as the current price is above passed in levels for the COVID period, from April 2020 onwards.

The 21 micron category is analysed in Figure 3. It is clear from this graphic that the passed in price for most stocks is well above the current market. Only a third of the stocks accrued in recent years have increased in value (since May 2020).

Finally in Figure 4 stock levels for 27-28 micron is analysed. The weakness of this sector of the market means that the average passed in price of 805 cents is some 200 cents above the current price level (27.5 micron).

What does it mean?

The industry has fretted over stock levels held by farmers, harking back to the stock overhang of the 1990s and its depressing effect on the merino market for the best part of a decade. There are some significant differences this time around including strong cashflows from livestock, low wool production (compared to record wool production in 1990) plus wool stock levels are nowhere as high as they were in the 1990s in either absolute or proportional terms. This article shows that stock flows back into the market will be restrained for the time being as price levels are not attractive in relation to passed in values for many categories.

Have any questions or comments?

We love to hear from you!

Print This Post

Key Points

  • Nearly two thirds of 16 micron wool stocks are worth more than when they were passed in.
  • For the 19 micron category wool passed in from April 2020 onwards is generally “in the money” while wool passed in before mid-2019 is 500—800 cents “out of the money”.
  • For 21 micron any stocks accrued before the pandemic effect was felt in the market remain a long way “out of the money” i.e. passed in at price levels well in excess of the current market.
  • For crossbred wool, as a general rule passing in wool has not been a successful strategy.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: AWTA, AWEX, Independent Commodity Services P/L , Mecardo

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services

Have any questions or comments?

We love to hear from you!

Update on RWS premiums

The greasy wool industry tends to think of quality effects on price as additive, somewhat like building a “lego price model” – add for good

Read More »

Want market insights delivered straight to your inbox?

Sign up to the mailing list to get regular updates to new analysis and market outlooks

Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published

Commodity conversations podcast cover image, a illustration of a sheep standing on a cow's back with grain either side
Listen to the podcast

Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.

Photo of a farmer surrounded by Merino sheep in dusty yards
Research: Analysis of the Australian sheep flock

In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making. 

Image of harvested grain pouring into a chaser bin

We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.