With full season data available for the Argentine wool clip, it is time to review the wool production of this member of the Southern Hemisphere merino exporter club.
Australia is the major supplier of merino wool but being the
biggest producer brings no market power, only bragging rights, which is a
standard feature for agricultural commodities. Within the merino supply, there
is quite a wide range of qualities, such as fibre diameter and staple length,
which has been made even more complex by the rise of demand for non-mulesed
wool allied with quality scheme accreditation. The application of these quality
aspects to the greasy merino market increases the importance of non-Australian
merino production, which included Argentina. The Argentine wool data used in
this article is available on the Federacion Lanera Argentina (FLA) website (read more here).
In greasy terms, the Argentine clip in total is equivalent
to around 7% of the Australian. Figure 1, using export data from the FLA,
breaks up the Argentine production by micron category (note that Argentine uses
a different set of micron categories to Australia) along with the Australian
volume for each Argentine micron category. In addition, the Argentine
percentage of Australian production is shown for each of the categories. From
19.5 through to 26 micron the Argentine clip is 10-13% the size of the
equivalent Australian volumes.
As shown in August last year, (read more
here) when the Argentine clip is compared to the non-mulesed section of the
Australian clip the Argentine production becomes far more important. Argentine
wool product is 29% of the Australian non-mulesed production, and for 19 to 22
micron it is 85% to 100% of Australian production.
Traditionally Argentina carries high greasy wool stock
levels in comparison to Australia. Figure 2 shows the end of year carry over
(stock) broken into fine, medium, and coarse wool expressed as a proportion of
annual production. By mid 2024 greasy stocks for the fine component (roughly
the merino component) were at 122%, up from 97% in mid-2023. Before COVID, a
stock level of 50% was normal so the Argentines are carrying half a season’s
excess fine wool stock. For the medium and coarse categories, the stock levels
are much higher, reflecting the very low prices for these categories in recent
years.
The wool industry is an international one, so prices tend to
be similar across different regions adjusted for logistic costs and quality.
Figure 3 compares an Argentine greasy wool prices series (in clean terms) with
the Australian 21 MPG in US dollar terms adjusted to 70% of its value. The two
series follow each other reasonably well, in terms of cycles and trends.
The FLA is forecasting a fall in the fine wool production in
Argentina this season of 6%, a fall of 15% for 24.6-32.5 micron wool with an
overall fall in total production of 9%.
Finally, Figure 4 looks at the trend in the Australian
merino average micron since 2009-2010 and the trend in the average fibre
diameter of the Argentine clip between 16 and 23 micron for the same period.
During this time the Australian merino average fibre diameter has fallen from
around 19.5 micron to 18.0-18.5 micron, a fall of 1-1.5 microns. The finer part
of the Argentine wool clip has fallen from around 20.3 to 19.9, a fall of 0.4
micron.
What does it mean?
Wool production in Argentina is faced with falling production in the face of low prices and high greasy wool stock levels. In the short term supply (production and stocks) is ample, and high in comparison to the Australian supply of 19 to 22 micron non-mulesed wool. At the same time, Australian production of broader merinos will be lower as Western Australia scales back their flock.
Conditions are building for a supply shock if Argentine production does fall as projected and Western Australian production falls as feared. The fall will be masked by stocks until the stocks are sold down, which was the state of the Merino market in 2001. The market of 2002 followed.
Key Points
- In gross volume terms the Argentine wool clip is 7% of the size of the Australian wool clip. When adjusted to non-mulesed only, the Argentine clip is 29% of the Australian clip.
- Argentine wool stocks grew again last season, and now stand at 100% to 250% of annual production depending on the category of wool.
- The average Argentine greasy wool export price follows the Australian 21 MPG, which makes sense as the 19.5 to 22 micron categories are the big production categories in Argentina.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: FLA, AWEX, RBA, IWTO, ICS, Mecardo
