Merino running from shed

Amongst the collapse and now partial recovery of greasy wool prices in 2020 micron premiums and discounts have been steadily widening in response to changing supply. This article takes a look at Merino micron price curves now and in recent years for comparison.

In late August Mecardo looked at fine wool premiums and supply, showing how falling supply was correlated with rising premiums. The article expressed the opinion that this trend would persist well into the second half of the season. Some components of the greasy wool market can be understood with careful analysis, in contrast to the sudden appearance of pandemics and the equally surprising rate of recent price rises. Micron premiums and discounts are a component of the market which can be studied as it is sensitive to changes in supply for which we have very good information.

Figure 1 shows the merino micron price curve (14 micron through to 23 micron) from last week. It compares the price curve for combing fleece, carding length fleece, pieces and bellies as well as a combination of locks and crutchings. Prices are set to a base of 19.0 which equals zero. There is more variation in the cardings series as they combine quite different components (locks and crutchings) and will have some significant differences due to subjective assessments of staple length. What may be 40 mm to one buyer may be 45 mm to another and so on.

The interesting message from Figure 1 is the similar micron price curves for combing and carding wool. In September Mecardo point out that micron matters for cardings prices. Carding prices do not always follow the lead of combing fleece when it comes to micron premiums and discounts. Figure 2 repeats the format of Figure 1 for merino wool sold in April 2017, the previous period of high fine combing wool premiums. The combing wool premiums are lower in this sample, with carding fleece, pieces and bellies premiums highly variable and fine locks and premiums with no effective premiums at all. On the broader side the micron discounts all follow each other closely.

A third comparison is provided in Figure 3 which samples wool prices from a sale week in June 2019. The series are messy with the essential message that there is little micron trend if any below 21 micron. This was a period of minimal micron premiums and discounts for all categories of merino wool.

For locks and crutchings the current fine micron premiums are the highest they have been since the 1999-2001 fine wool boom market, although they did reach near current levels briefly in 2005.

What does it mean?

It is always a challenge to chip away parts of the greasy wool market which can be understood, in an attempt to reduce the part of the market which remains uncertain. In this market the fluctuations in the base price remain uncertain (if you doubt that ask an exporter) but the increasing micron premiums and discounts make sense in regards to changes in supply. Be careful not to sell fine cardings too cheaply, and be wary of forward prices with fairly short delivery times being offered for fine wool. The demand for fine merino wool is quite strong.

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Key Points

  • The current cycle of rising fine micron premiums continues to be experienced by combing and carding merino wool.
  • Carding prices do not necessarily follow combing wool prices with regards to micron premiums.
  • Fine micron premium for merino cardings are the best in two decades.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources:  AWEX, ICS, Mecardo

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