Merino sheep walking out of a shed

It has been a while since Mecardo looked at Australian Wool Testing Authority (AWTA) core test volumes, and with the merino micron swinging finer earlier than anticipated it seems timely to review supply by micron category.

The raw material used in this article has been drawn from the excellent AWTA website (see here) which makes available monthly AWTA volume data. Figure 1 shows the micron distribution of wool tested in Australia during the June quarter (right-hand axis) and the year-on-year change in volume by micron category for the June quarter (left-hand axis). The swing in the merino fibre diameter shows up nicely in the volume change (bars) with increases in volume below 19 microns growing as the micron decreases.

In June, the average merino fibre diameter of wool sold at auction was 18.6 micron, down 0.27 micron on June 2022. For breed fibre diameter, auction data is used as lot sale data identifies the breed. AWTA data does not distinguish between breed so the average fibre diameter for June of 20.4 micron includes non-merino wool and as a consequence is 1.8 microns broader than the merino average.

Only the 29-30 micron category had a lower volume in the June quarter, down by 6%. Figure 2 shows the change in volumes in farm bales, split between Eastern and Western Australia. Looked at this way the 29-30 micron volumes are down a small 835 bales which could be a timing issue or farmers simply leaving low-value wool in a shed on the farm to avoid storage costs.

In farm bale terms the 17-micron category had the largest increase in the June quarter, up by 9533 bales (21%) with Western Australia contributing one-quarter of the rise. Overall supply was up 8.2% in the June quarter (all categories).

For the full season, the picture is slightly different. Figure 3 shows the micron distribution of wool tested by the AWTA (ranging from 12 micron and finer through to 30 plus micron) and the season-on-season change in volume in percentage terms. 17 micron and finer volumes were up substantially in 2022-23, 18 and 19-micron volumes were up slightly with 20 and 21 micron down slightly. Crossbred volumes were generally up. For the full season farm bales tested by the AWTA were up 3.9%.

ABARES projected a 1% increase in the flock number for 2022-23 which seems low as the finer nature of the merino clip implies a lower cut per head, so increased volumes would have to come from increased numbers. The MLA projected an increase in the flock of 3.6% in their February projections which fits more closely with the increase in AWTA volumes.

What does it mean?

Reports indicate weaker demand for fine merino wool. However, as fine merino supply has picked up (as this article shows) and when combined with weaker demand generally (stemming from a weaker economic backdrop to the market), it is no surprise prices are weaker. Increased supply has been an issue for both sheep meat and beef prices as well.

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Key Points

  • The merino clip skewed finer in 2022-23, helping to explain the weakness seen in fine merino prices.
  • Overall volumes were up by 3.9% (farm bales) as tested by the AWTA last season.
  • The finer Merino clip suggests the increase in supply was based on extra sheep, as cuts per head are positively correlated with fibre diameter.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: AWTA, MLA, ABARES, ICS, Mecardo

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