Minimal staple strength effect matches minimal staple length price effect

Last week Mecardo looked at the effect of staple strength on the price of Merino fleece, showing that discounts and premiums are trading at minimal levels. This week we look at the effect of staple length on price for Merino fleece in the current market.

Staple length is a major determinant of the type of processing most wool is best suited to (especially when combined with staple strength and the position of break). The AWTA website lists papers and fact sheets which explain the usefulness of measurement in wool (view here).

In the TEAM formula, used to estimate key measures of wool top for greasy wool consignments, staple length and staple strength are, to a degree, interchangeable. This means they are linked, so minimal discounts and premiums for staple strength imply there will be minimal premiums and discounts for staple length.

Figure 1, shows average September (to date) prices for 17.5 micron fleece across a range of staple lengths, with locks and crutchings added on the short end of the series. The lowest price is for locks, with prices increasing as the staple length increased through to around 62 mm, where prices effectively stabilised between 1300 and 1450 cents – a wide range with no real correlation between the staple lengths once we get to 62 to 120 mm.

In Figure 2, we have the prices from Figure 1 compared to the 90 mm length as the base (equal to 100%). This shows the high value of the shorter lengths, with the 30 and 40 mm lengths trading at a remarkable 80% of the 90 mm length.  To check the current staple length curve, the five year median staple length curve for 17.5 micron is overlaid on Figure 2. For the 30 and 40 mm length wool, the five year median basis to 90 mm is around 69% to 72% so the current discounts are 8% to 11% above expected levels.

In light of the smaller than expected discounts for shorter length wool, the first question to ask is what is supply up to? Figure 3 shows the monthly proportion of 50-69 mm length wool of combing length 17.5 micron wool from 2000 to the current month. There is a seasonal pattern in this proportion, generally reaching a minimum level in September/October. In the past decade, the seasonal minimum has generally been below 10%, although in the past two seasons the minimum has crept higher. For September to date, some 14.5% of combing 17.5 micron wool sold has been in the 50-69 mm range, a relatively high proportion for this time of the season.

Figure 4 shows the year on year change in the actual volume of 17.5 micron 50-69 mm long wool sold (0-2.5% VM) from 2000 onwards (smoothed by three months). The graphic shows how volatile the supply of this category has been, and that supply has been below year-earlier levels for the past year.

What does it mean?

The relative out performance of shorter staple length wool (and lower staple strength wool) implies that demand from the knitwear sector is much stronger than demand from the worsted sector. The supply of short 17.5 micron wool has been falling for the past year, helping to keep discounts at minimal levels. In recent months the change in supply has started to stabilise which is a little surprising. This needs to be monitored as it may allow the discounts for short staple length 17.5 micron wool to start widening again.

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Key Points

  • Discounts for shorter staple 17.5 micron wool are trading at minimal levels which correspond, as expected, with minimal discounts for low staple strength.
  • While the supply of shorter (50-69 mm length) 17.5 micron wool has been below year earlier levels since mid-2019, it is starting to stabilise which might take some of the support for minimal discounts out of the market.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources:  AWEX, ICS, Mecardo

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