A couple of weeks ago Mecardo looked at the seasonal flow of wool from the major southern hemisphere exporters in order to estimate the likely increase in stocks arising from exports stopping during lockdowns. In this article we take a look at Australian volumes cleared at sale, with a view to estimating changes in greasy wool stocks held by growers.
Greasy wool stocks held by farmers have not been a big issue in the supply chain for the past couple of decades, in contrast to the 1990s when greasy stock levels were a major factor. Developing a view of greasy stock levels is not straight forward as they are not reported on. A view is developed by looking at differences between production, sales and exports.
Figure 1 shows the best estimate of production (AWTA core test volumes) by season from the late 1990s along with the auction sales volume, both in clean terms. On the right hand axis auction sales volume expressed as a proportion of AWTA volumes is shown. The 2019-2020 season data only runs to March hence the much lower volumes, but the proportion of sales to production is the key piece of information of interest for this article.
In the years from the late 1990s to around 2006, auction sales accounted for 70-80% of AWTA volumes. This implies a large proportion of the clip was sold outside of auction. The proportion sold outside of auction tended to increase as fibre diameter increased. Around 2006-2007 the proportion of wool sold at auction increased and has continued in a range between 80% and 88% (averaging 84%), until this season where the proportion to March has fallen to 73%. This implies that greasy stocks held by growers is running around 11% of annual production (84% – 73%), which fits with stories from wool stores about increased grower stocks.
Another way of checking auction wool sales as a proportion of total production in Australia is to look at the gross value of auction sales compared to the gross value of first hand wool sold. This comparison is made in Figure 2, with the data running to last season (2018-2019). The value in billions of Australian dollars is shown on the left hand axis for the gross value of first hand wool sold and auction sales. On the right hand axis the proportion of auction sales value is shown. The proportion of auction sales value rose from the late 1990s to peak in 2011-12 at 97%. Since 2013 auction sales have averaged around 92% of the gross value of first hand wool sold (subject to the wool levy).
What does it mean?
Increased greasy stocks mean greater supply (production plus stocks) which puts downward pressure on price. Wool is not alone with cotton expecting stocks (outside of China) to pick up by 3 million kg this season. The weakness in demand also points to the likelihood of wool stocks building up along the supply chain. The degree of effect on price will depend on the level that stocks build to, and this part of the story is still unfolding.
Key Points
- In recent years around 92% of the gross value of the Australian clip has been sold at auction, implying around 8% of the Australian clip is sold through channels other than the auction system
- In terms of volume auction sales have accounted for 84% of AWTA volumes (the proxy for production) in recent years
- For the current season to date (to March) auction volumes are only accounting for 73% of AWTA volumes, implying grower stocks have increased by 11% of annual production
Click on graph to expand
Click on graph to expand
Data sources: AWEX, AWTA, AWI, ICS
