Wool prices weaken in relation to Micron Price Guides

Merino sheep flock wool at Tolarno

The Australian greasy wool market is a transparent one due to AWEX, the body charged with reporting on the market. As noted in previous articles the key tools generated by AWEX to monitor the market are the Micron Price Guides (MPGs), which provide a measure of price movement in different micron categories. To allow comparison of MPGs across time the specifications of wool used to develop the MPGs are kept constant, but wool varies with seasonal conditions. This article looks at the result.

AWEX bases its Micron Price Guides (MPG) on fleece with low vegetable fault, good staple strength, and a narrow range of full combing lengths (no shorter or over long lengths), (read more here). Figure 1 compares the average price for 19-micron wool sold at auction (all types of wool) to the Eastern 19 MPG, monthly averages, from the mid-1990s to May 2023. In recent decades the two series have followed each other closely, although there is a gap between them which is to be expected as the average prices include all the lower value (in relation to fleece prices) types of wool which pull the value below the MPG.

In Figure 2, the average price from Figure 1 is expressed as a ratio of the eastern 19 MPG (also from Figure 1). In the 1990s the average price ranged between 0.88 and a low 0.7. From 2002 onwards the ratio improved to generally range between 0.85 and 0.9 with occasional periods at lower levels, usually in the autumn (April/May). From 2013 to early 2022 the ratio lifted to range between 0.9 and 0.95, except for autumn 2017 when it dipped low. This May the ratio dropped to a low 0.83. The timing is no surprise, but the ratio is a low one.

Figure 3 repeats Figure 2 for the average Fremantle 19-micron price, expressed as a ratio to the Eastern 19 MPG. It gives a similar story to Figure 3 except it starts with a noticeably lower base in the 1990s when the western 19-micron price ranged between 0.6 and 0.75 of the Eastern 19 MPG. The good news is that during the past decade, the ratio has been very similar to the East, trading mainly in the 0.9 to 0.95 range.

Why the low ratio in the current market? Quality plays a role, with vegetable matter levels very high at present, especially in the east and over-length wool has been a problem for broader merino wool. Then there is the problem of lacklustre demand. Seasonal patterns can help tidy up expected ratios.

The interest in the ratio stems from the use of MPGs as an aid to budgeting, as a shorthand for wool values, and the likely value of wool sales. Table 1 shows the ten-year median (to last season) price ratio for 17 through 21-micron wool, the average for the current season, and the ratio from May. Both the 17 and 21-micron price ratios are well below their decade averages for the season and for May.

What does it mean?

While AWEX does its job in producing the MPGs, the variation in the average price ratio to MPGs is beyond their control. Currently average wool price ratios to MPGs are low by the standards of the past decade and warrant attention if they have been used for budgeting purposes.

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Key Points

  • Average merino wool values have fallen in 2022 compared to their respective MPG.
  • The ratio for the average wool price to MPG often reaches a low in the April/May period.
  • For anyone using a MPG as a budgeting tool you should be checking the price ratio used as it is very likely to be lower than anticipated at present.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: AWEX, Independent Commodity Services Pty Ltd, Mecardo

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