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Thursday, May 07, 2015

Where is the Merino fibre diameter heading?

By Andrew Woods, ICS  |  Source: AWC, WI, AWEX, ICS

Key points

  • Micron premiums and discounts have accounted for two thirds of the change in the average merino fibre diameter during the past 30 years.
  • Production effects tend to lag the micron premium and discounts by 4-5 years, so the recent low fine wool premiums are yet to be reflected in wool production.
  • Merino fibre diameter modelling projects increases in the average fibre diameter of 0.2-0.4 micron in the next 2-3 years, with improved seasonal conditions helping this change.

2015-05-07 Fibre Diameter Trend FIG 1

2015-05-07 Fibre Diameter Trend FIG 2

A year ago, Mecardo looked at the trend in the merino fibre diameter and concluded that the average merino fibre diameter was likely to gradually increase during the next 4-5 years, seasonal conditions allowing. This article takes another look at the trend in merino fibre diameter.

Figure 1 shows the annual merino fibre diameter from the early 1980s to the current year, along with a measure of the micron premiums and discounts and model projections for the next three years of the average merino fibre diameter.

The model, assuming median rainfall, still forecasts an increase in the average merino micron of 0.2-0.4 micron in the next few years, with part of this increase caused by improved seasonal conditions. Keep in mind that seasonal conditions account for about two thirds of the year-to-year variation in fibre diameter. Given the large change in the micron profile of the merino clip during the past 30 years, the model projections are a rather sedate forecast.

To better understand the logic underpinning the projections (which are based on a different model to that used in the article a year ago), figure 2 compares the change in the average merino fibre diameter (smoothed by 6 years to remove some of the noise caused by varying seasonal conditions) with the micron premiums and discounts.

The micron premiums and discounts are the average per micron premium between the micron category 2 microns finer than the average merino micron to the micron category 2 microns broader. In addition, they are averaged over 5 years and then advanced by 4 years. It logically takes time for farmers to make decisions based on pricing signals and then further time for the production effects to become apparent, hence the smoothing and shifting of micron premium data.

When this is done, as it is in figure 2, the micron premiums account for about 64% of the change in merino fibre diameter. If a rainfall factor is added, some 80% of the change in merino fibre diameter can be accounted for.

Figure 2 shows that the effect of the low micron premiums of recent years is yet to be reflected in production changes. The model and feedback from the bush points to the fibre diameter of the merino clip reacting by increasing. The question will be by how much?

Read last year’s article:Merino micron trend to rise gradually

What does this mean?

Year-to-year changes in the merino fibre diameter are dominated by changes in seasonal conditions, with the underlying trend in production playing a secondary role. The underlying trend, however, has a cumulative effect with time, while the seasonal effect waxes and wanes. Model projections indicate that the underlying trend will add 0.1-0.2 microns to the average merino micron in the next few years, as the effect of a run of low fine wool premiums starts to be reflected in production. This will help reduce fine wool supplies and thereby allow fine wool premiums to return to improved levels.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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