Change in wool supply is always an issue with regard to the relative price of wool of varying quality (be that breed, micron, staple length, staple strength, vegetable fault, mules status, quality scheme accreditation and so on). This article takes a look at the latest AWTA data and the changes it shows going on in the Australian wool clip.
It pays to point out that “wools ain’t wools” rather the
greasy wool market is a collection of associated markets for varying qualities
of wool. An example of this at present is the sub-16 micron categories which
are trading at relatively good to high price levels in contrast to the 16
micron and broader categories. Change in supply tends also to vary between
breed and micron categories.
Figure 1 shows the year-on-year percentage change in AWTA
core test volumes by micron categories for eastern and Western Australia, in
the three months to November. Western Australia stands out for the big changes
in the western merino clip, with 21 micron volumes down by 52% and 15-16 micron
volumes up by 80-90%. Clearly, the western merino clip has had a big shift
finer during the past year, in addition to any changes in the flock size (read
more here) and overall clip volume which was down 14% for this period.
The eastern merino clip also showed a swing finer in the
three months to November, on a much milder scale with the 21-micron volume down
17% and the 15-16 micron volumes up by 20-40%. In addition, crossbred volumes
were down by 15-30%. Overall the eastern clip volume was down 6.6%.
To put the eastern and western changes in volume in
perspective Figure 2 shows the change by micron category in farm bales. The
eastern clip dominates crossbred production, so Western Australia contributes
little to changes in the crossbred categories. In the merino categories,
western changes are the main drivers for 17 and 19 micron as well as
substantially influencing 20 to 22 micron falls in supply.
The combined rise in fine merino volumes means that 14-16
micron volumes are up 28%-37% for the three months to November. Such an
increase in a market struggling on the demand side points to downward pressure
on the brightest section of the market at present and continued (relatively)
low prices for 16-17 micron wool. Conversely the continued fall in broad merino
production points to prices being supported at current levels.
The downside for the broader merino micron categories is
that the longer the low production continues for broad merino, the more the
supply chain will adjust meaning demand will structurally (permanently) shrink.
There is an upside in that lower volumes will lead to an increase in the base
or trend price ratio (to the other major staple prices (cotton, polyester,
acrylic and viscose).
To show why the western clip has skewed so strongly to the
finer side, Figure 3 shows the monthly average merino fibre diameter for merino
wool sold at auction in eastern and Western Australia during the past decade.
In November the western merino micron reached a low of 18.1 micron which was
0.65 micron finer than a year earlier and 0.26 micron below the eastern fibre
diameter. It has done this before but on average during the past decade the
western clip has been 0.25 micron broader than the eastern merino clip.
What does it mean?
Eastern Australian volumes were down 6.6% in the three months to November which fits with the eastern flock size being down by 3% with lower fleece weights accounting for the balance. In the west wool volumes were down by 14% partly due to lower fleece weights but mainly due to lower sheep numbers. The extra fine merino wool, concentrated in the sub-17 micron categories looks likely to dampen the sub-16 micron part of the market which has been performing well. For crossbreds, the lower volume could help support prices lift higher in the New Year once the market is past the peak supply period.
Key Points
- Aided by a substantially finer Western Australian merino clip, 16 micron and finer volumes have risen by 30-40% and broader merino volumes are 16-24% lower for the three months to November.
- Crossbred volumes are down between 15% and 28%.
- The sub-16 micron categories which have been bar far and away the best-performing section of the greasy market will come under downward pressure due to increased supply.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: AWEX, AWTA, ICS, Mecardo
