- Mecardo - https://mecardo.com.au -

Early season wool price performances in recent years

The wool selling season recommences this week after a three-week recess in auction sales, with COVID causing problems in China, especially in the region west of Shanghai which has a lot of wool processing mills located there. This article takes a look at recent wool early-season wool price patterns.

In 2019 the apparel fibre complex was in the midst of a cyclical downturn, after peaking in mid-2018. In 2020 commodity prices generally were reeling from the impact of the pandemic by mid-year so weakness in the wool price was not unexpected. Figure 1 shows the magnitude of the falls in price for the 19 MPG seen in August/September 2019 and 2020. Basically, the 19 MPG fell by 22-23% in each season, with the price recovering all of the fall and more in 2020 by late October.

What is the outlook for wool prices in the next couple of months? Until a few weeks ago the outlook was quite good, even with a pickup in supply as the recovery from the extended drought in south eastern Australia continues. However, COVID has reared up again in China, with Nanjing a hot spot. In this instance, COVID is simply causing problems for mills in the effected areas to operate in a normal manner, which will flow into the auction market in the form of reduced demand.

In an article last month Mecardo looked at the seasonal price pattern of the past decade and concluded a fall of 4% in the price in the spring was a reasonable expectation. With the COVID developments in China that is now looking like a best-case scenario.

To help put this in some perspective, Figure 2 shows the actual price levels for the 19 MPG in early 2019 and 2020, along with our starting price level for 2021. The 2021 starting price level for the 19 MPG is some 300 cents lower than in 2019 (which was coming off a major cyclical high) and some 500 cents higher than the start of 2020 (which was reeling from the impact of the largest pandemic in a century). The patterns of the past two seasons shows that holding back/passing in wool paid off in the second half of August to early September. It suggests that reserves for wool offered this week probably needs very conservative reserves, or be prepared to wait through to October and trust prices have rebounded.

What does it mean?

The effect of COVID is difficult to call as we do not know how long it will take for China to bring things under control (have a look at NSW as an example) so at this stage, it looks likely prices will follow the pattern or recent season and be weak until early September. As to the degree of weakness it seems unlikely price falls of 22% will occur for the third year in a row, but it is also likely the average seasonal downturn of 4% will be exceeded.

Have any questions or comments?

We love to hear from you!

Key Points

  • The 19 MPG has fallen by 22-23% during August/September of the past two seasons.
  • The 19 MPG has subsequently regained half or more of the fall in price by late September/October.
  • Forward prices are holding at present so any possible weakness in price is being called as short term by the forward market.

Click on figure to expand

Click on figure to expand

Data sources:  ICS, 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!