Last week Mecardo looked at RWS premiums, using South African quotes as a base by which to compare some Australian price effects. The initial analysis defaulted to proportional (percentage) premiums especially given the high value accorded to fibre diameter at present. This article updates and revisits the premiums in absolute (cents per clean kg terms).
It is always a challenge to understand the pricing structure (base prices and adjustments – the barème) being applied to the greasy wool market by the buy side, as they begin with consignment average prices and then apply these to small farm lots varying the lot price according to the interaction of supply of and demand for various characteristics. RWS premiums have become an influential factor in pricing only recently, so the challenge is to understand how the buy side is pricing this factor.
RWS is an animal welfare quality system, which is blind to wool quality. In last week’s article it was noted that the RWS premiums reported in South Africa by Cape Wool SA, and those that could be gleaned in the Australian market, increased in percentage terms as the fibre diameter increased. The (weak) supposition was that this variation in proportional premiums might be supply driven.
Figure 1 shows the RWS premiums reported by Cape Wools for last week in percentage terms (the line) and in absolute (c/kg clean) terms (bars). Looking at the premiums in absolute terms shows that the buy side looks to have basically a flat premium for RWS merino fleece wool which was around US250 cents last week. Keeping in mind that RWS is blind to wool quality, this makes some sense. The premium is being applied regardless of the micron category, regardless of quality and value in the current market. In Australian dollar terms the premium in South Africa was between 300 and 350 cents per clean kg.
In South Africa last week some 25% of the merino offering was RWS accredited whereas in Australia during November to date only 2% of merino fleece wool sales (with New Zealand accounting for 1.2% of the 2%) have been RWS accredited. Supply is limited in Australia which makes the teasing out of meaningful price effects, premiums in this case, harder to do.
Given the above caveat, Figure 2 shows RWS premiums for a selection of Australian merino fleece for November to date. The Australian merino fleece used had a range of staple length 68-110 mm, 38+ N/ktx staple strength, 0-1.5 VM, was CM-NM declared with no subjective fault (cotts, dermo and the like) and was from the eastern selling centres. The median RWS premium (to comparable CM-NM fleece wool) from 17.5 through to 20.5 for the Australian wool was around 250 cents. This is less than the reported South African premiums but there will be error in this analysis due to variable quality. While the premium appears lower in Australia, it does appear to be a flat premium as reported by Cape Wools.
What does it mean?
It appears that RWS pricing is fairly straight forward, add AUD250-350 cents per clean kg for the straight merino fleece lots. The level of the premium presumably will be sensitive changes in supply, with Australian volumes still extremely low overall. There is plenty of upside for Australian wool with regards to RWS and premiums of 250-350 cents will attract more volume.
Have any questions or comments?
Key Points
- RWS premiums look to be flat value across micron ranges.
- This makes some sense given that RWS is not concerned with wool quality (value).
- This premium will still be subject to changes in supply, with Australian RWS supply still running around 1% of merino fleece in the eastern sale centres.
Click on figure to expand
Click on figure to expand
Data sources: Cape Wools, RBA, AWEX, ICS, Mecardo