Mecardo looked at vegetable matter (VM) discounts for broad merino in mid-August, when they had blown out to extreme levels. This article takes a look at what has happened to VM discounts in the months since.
In mid-2021 the VM level in the eastern Australian wool clip rose from the low levels of 2019 and 2020, which were driven downwards by severe drought. In contrast the VM level of the Western Australian clip during the same period had tracked at normal levels. Figure 1 shows the average monthly VM level for wool sold at auction in Australia from mid-2000 onwards, for eastern and Western Australia. The schematic shows that the eastern VM level, while it has fallen since August, it remains elevated. In contrast the VM level in Western Australia has fallen to low levels, reflecting the tough seasonal conditions of 2020.
The Mecardo article in mid-August looked at VM discounts for 21-micron wool. Figure 2 shows the discount for 4.1-7% 21 micron merino combing fleece to a base 21 micron combing fleece price which has a VM range of 0-2%. These series have quite a wide range of staple length and strength which will introduce some variation into the comparison, but we are only looking for the bigger influence of VM. Figure 1 shows the extreme level of VM discounts in August. In this comparison the discount blew out to 200 cents (clean). It has since narrowed to around 70 cents. The August article expected the discounts to shrink, and for broad merino fleece wool they have.
Figure 3 looks at the VM discount for 19.5 micron. The mid-2021 discounts were wide but not as extreme as the broader merino categories. The corollary to this is that the VM discounts have not shrunk as much as the broader micron categories have.
The 17 micron VM discount is looked at in Figure 4. The discount blew out to 400 cents in mid-2021. Since August the discount has narrowed by 100 cents (clean) but remains wide, by the standards of the past two decades. Figure 1 helps to explain why this is so. VM levels in eastern Australia remains high. The low VM levels in Western Australia does not help, as 17 micron production is fairly small in the west and cannot help limit the effect of the eastern VM levels.
What does it mean?
In May 2021, Mecardo looked at the seasonal patterns in VM levels, which showed VM levels generally reach seasonal lows, late in the calendar year. The still elevated VM levels in eastern Australia, means that VM levels will begin to rise in 2022 from a relatively high base. This implies that VM discounts will continue to be substantial in 2022.
Key Points
- Broad merino VM discounts have shrunk from their extreme levels of August.
- Medium and fine merino VM discounts have eased slightly in recent months, but remain relatively high.
- VM levels in eastern Australia will begin rising in 2022, from a relatively high level, which points to continued substantial VM discounts through 2022.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: AWEX, ICS, Mecardo
