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Thursday, October 01, 2015

A look at the South African merino clip

By Andrew Woods  |  Source: Cape Wools, AWC, WI, AWPFC, AWEX

Key points

  • The South African wool clip stabilised a decade ago, some 5 years ag-head of the Australian clip.
  • The South African wool clip is 13-15% the size of the Australian clip.
  • With an average fibre diameter of 19.5 micron, the Australian and South African merino clips have a very similar fibre diameter distribution.
  • The marked difference between the two merino clips lies in the staple length with the South African clip much shorter than the Australian clip.

2015-10-01 Figure 1. Wool Production In South Africa And Australia

2015-10-01 Figure 2.  South African Merino Fibre Diameter Distribution

2015-10-01 Figure 3.  South African And Australian Merino Staple Length Distribution

The wool growing countries of the southern hemisphere have been the great greasy wool exporters for the past century. Processors look at the greasy wool supply from a world perspective, choosing wool from different regions based on costs, quality and availability. This article lifts Mecardo’s eyes beyond the shores of Western Australia and looks at the South African wool clip.

Commodity prices are international with prices at the local level transformed by the local currency. As such the price ratios between commodities that we see are generally those that apply in other countries as well.  Commodity production responds to changes in prices, so we should see similar trends in production between different countries, with some variations due to local factors. In South Africa the local factors will also include stock theft and competition for land resources from game parks.

Figure 1 shows total wool production in both South Africa and Australian from the mid-1970s onwards. Both clips peaked in volume at the collapse of the Reserve Price Scheme, with the South African clip at 101 million greasy kilograms, only 9% of the Australian clip at the time. Following the peak the South African clip plummeted in volume by 60%, finally stabilising about a decade ago. The Australian clip declined more slowly but only started to stabilise around 2010. The two clips have followed similar trends during the past quarter of a century, with the South African clip finding a base 5 years before the Australian clip.

In the 1970s and early 1980s the South African clip volume was 15-17% of the Australian clip. During the late 1980s and 1990s this proportion shrank to a small 7-8%. Over the past 5 years it has returned to the 13-15% proportion, which is on par with the 1970s.

Some 88% of the South African clip is merino (greasy basis) which is higher than the Australian proportion of 80%. Figure 2 shows the fibre diameter distribution of the South African merino clip. It basically ranges from 17 through to 22 micron (similar to the Western Australian clip) with an average fibre diameter last season of 19.5 micron. The Australian average fibre diameter last season was 19.0 micron, arguably finer than it would be given a couple of median rainfall seasons. So, in terms of fibre diameter the South African clip is similar to the Australian clip.

Figure 3 shows where the difference lies. This shows the staple length distribution for the South African and Australian merino clips in 2014-15. The South African clip is short by Australian standards (perfect by Italian processor standards). Only 3% of the South African merino clip is longer than 90 mm while some 54% of the Australian clip is longer than 90 mm.

What does this mean?

The South African clip has traditionally had a logistic advantage to Australia due to its proximity to Europe. Wool from South Africa has sold at sizeable premiums to the Australian market for most of this year. Given the strength of the knitwear market it makes sense that the shorter South African clip would be favoured. In addition the flock is not mulesed, an additional advantage of South African wool. In the long run we need to cooperate with other suppliers of greasy wool in order for the supply chain to have adequate raw materials to work with so a stable to slightly growing South African clip is good news.

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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