Supply pressure spooks sellers

AWI’s weekly market report cited a lack of demand from European buyers, and AWEX noted that the relatively favourable start to this season had seen more volume come forward (a 40K plus offering that was 8% higher week on week). The result was the supply and demand see-saw tipping against expectations this week. The EMI lost 23¢ to 1192¢/kg, and Merino categories across all three centres eased.

Sydney saw MPG losses ranging from 26¢ to 47¢ and the Melbourne merino categories were softer by 16¢ to 58¢. For both markets, the finer end of the spectrum saw the steeper declines.  With the market turning, sellers voted with their feet, particularly in Melbourne, where the pass-in rate averaged 14.6%. The Western Market Indicator (WMI) lost 21¢ to 1338¢ where price declines ranged from 12¢ to 45¢ and potentially could have pushed lower if not for the Western seller’s willingness to lick their wounds and opt out (the pass-in rate averaged 20.7%). 

This week on Mecardo, Andrew Woods investigated the changing dynamics of the Australian Merino flock (read more here).  If we were still producing merino wool at the same micron and volume seen in the mid-1990s, the price for the 21 MPG would likely be half of its current price (725 versus 1449 cents). Furthermore, through selective breeding for micron performance/productivity and the changing demands of consumers, 19 micron and finer categories have all enjoyed growth in production and demand over the same period. While the overall volume of the merino clip has fallen by two-thirds during the past three decades, some micron categories have grown.

At the end of the current cyclical low, there will likely be a lower national sheep flock on farm and, therefore, lower wool volumes for sale.  We’ve seen weekly sale volumes much higher than current levels (Figure 2), suggesting an eventual upside potential that will benefit those who remain productive when the market does eventually turn.