Vegetable fault discounts reach seasonal maximum

In May, Mecardo looked at the seasonal pattern in the supply of vegetable fault (VM) in the Australian clip showing how from September onwards it tends to fall. It seems the combination of August weakness in prices (again) with the seasonal peak in high VM and the big increase in broader Merino micron supply has put a lot of pressure on discounts for VM in broader Merino fleece prices.

Figure 1 shows a monthly difference in price for 2.5% VM 21 micron fleece (around 90 mm in staple length) from 2006 onwards compared to a base price of 0 to 1.8% VM. While the average discount is around 1% or 13 cents clean (see Table 1) it swings around from positive to negative. In effect, the schematic in Figure 1 is saying that normally a VM level of 2.5% in broader Merino fleece does not have a big effect on price. This is not the case now where the discount is swinging between 50 and 100 cents, even more if the lot has a low yield below 60%.

Table 1 shows the percentile analysis for Figure 1, in both cents per kg terms and percentage terms. The current rank for the discount is 3-4%, which means it has only been lower for a small amount of time in the past 15 years. It was noticeable in last weeks auction sales that broad Merino fleece with 2-3% VM was heavily discounted, especially if the VM was combined with another fault such as low yield or staple strength.

Figure 2 gives a better view of the discounts as it compares 4.1-7% VM 21 micron fleece to the same base (0-1.8%) – the larger difference in VM level results in a larger discount with less room for the vagaries of topmaking, consignment building and wool specifications to muddy the view of this discount. Table 1 shows the average discount has been around 7% or 88 cents clean for the past 15 years. The discount for the range of VM, in both absolute and proportional terms, is also close to the lowest levels of the past 15 years with rankings in the 2-3% range.