By Andrew Woods | Source: AWEX, ICS
Mecardo has looked at the relationship between supply and price/basis for different micron categories in recent months. In this article we look at the potential for change in supply by merino micron category this season.
The rolling 12 month rainfall rank has fluctuated between the 30th and 40th percentile level for the past three years. It has been an extended dryish period of production, drawing down on flock numbers, wool production and the fibre diameter of the clip. It also renders the wool clip susceptible to a marked change in the fibre diameter distribution, in the event of markedly improved seasonal conditions, which this season has the potential to deliver.
Figure 1 shows the actual fibre diameter distribution (FDD) for merino wool sold in 2015-16, along with a simply bell curve model of the FDD. The average merino micron for 2015-16 was a shade under 19, at 18.97 micron. The actual FDD pushes slightly out to the broader side of the model (the reverse of a decade ago) with the peak level for 19 micron being slightly lower.
We want to use the model curve to investigate what a change in the average micron would do to the supply of each micron category, assuming the distribution of microns around the average stays basically the same in 2016-17. Figure 2 shows the two curves, the model for 2015-16 and the projected model for 2016-17 assuming the average micron for the merino clip broadens by 0.5 micron. It is only a moderate change but it has some big effects on supply of individual micron categories.
Table 1 lays out the projected change by micron category, derived from the two curves in Figure 2. The relationship between the model and actual is poor for the extreme ends of the FDD, at both the fine and broad ends so take the projected changes there with a grain of salt. Keep in mind that grower stocks can influence the supply of the small categories for fine wool at least and crossbred volumes can swamp the supply of very broad merino wool.
In Table 1 have a look at the projected/potential change for the 21 to 23 micron categories. They are big increases which, if they turn up, will have a sizeable effect on price. On the finer side 16-18 micron volumes fall heavily (the finer the greater the fall) which would help revive fine wool premiums.
Once the spring seasonal conditions are know, we can start to project supply changes with more confidence and with that projected changes in the price structure of the market.
Seasonal conditions are shaping up nicely and the potential for the merino fibre diameter distribution to increase in 2016-17 is good. The model used in this article shows the potential effect of an increase in the average fibre diameter by half a micron. It would result in 38% more 21 micron wool and 65% more 22 micron wool, which in turn would put downward pressure on price. On the fine side 17 micron volumes would fall by 33% and 16 micron by 44%, helping to revive fine wool premiums.
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