With the weakening in merino wool prices since May/June it is timely to look at the price relativities of the merino micron categories, as it is easy and common to anchor expectations on recent price levels even though these price levels might be extraordinary.
Wool prices in general follow the cycles and paths of the general apparel fibre market, as these fibres are responding to common economic conditions which drive demand and they also have a complimentary/competitive relationship with other fibres. Within the wool market, the movement of price relativities (premiums and discounts) tends to be more wool-focused. In this article, we look at the price relativities for different merino micron categories using 19 micron as the base.
Figure 1 shows prices series for 16 and 19 micron (half micron series so prices are drawn from one quarter of a micron on either side of the nominated micron) merino combing fleece, for the past 20 years. RWS-accredited wool has been excluded from the series. It shows the 16 micron series falling by 500 cents since mid-year and the 19 micron series falling by 200 cents in the same period. While the two series are following a common cycle/trend, the price relativities have changed with the finer micron premium shrinking, in this case by 300 cents.
Auction sales in October have covered the full range of micron shown in Table 1, 14 to 23 micron for merino fleece wool. In Table 1 a 20-year percentile breakup of the micron premiums and discounts to 19 micron, is shown along with the average for the two decades, the current (October 2022) level and its rank. Premiums and discounts expressed as percentages help get around the issue of inflation, by comparing percentages through time rather than monetary units (cents per kg). October fine merino premiums in percentage terms remain high by the standards of the past two decades, while the discount for broader micron categories were close to average\/median levels for 20 and 21 micron. Discounts for 22 and 23 micron were greater, presumably dragged down in part by the depressed crossbred market.
Table 2 shows a percentile breakup of micron premiums and discounts in deflated cents per kg terms for the past two decades, to a base 19 micron. The message in cents per kg terms is much the same as seen in Table 1. Fine micron premiums remain high, 20-21 micron discounts to 19 micron are near median/average levels and the broader the micron gets the larger the discount becomes.
What does it mean?
The challenge in assessing markets is to walk a line between “Sell and repent but sell” and having your price expectations anchored on recent levels, especially when prices start to ease. In the current market fine merino premiums have eased, quite a lot, but remain at high levels by the standards of the past two decades. Fine merino wool is still not cheap.
Key Points
- While fine merino premiums have fallen in recent months, they remain at high levels by historical standards.
- 20-21 micron discounts to 19 micron are close to median/average levels
- As fibre diameter increases on the broader side of 19 micron, discounts widen and their ranking falls away.
Click on figure to expand
Click on figure to expand
Data sources: AWEX, World Bank, ICS
