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Thursday, November 13, 2014

Unscrambling the effect of micron, length, strength and mid-break

By Andrew Woods  |  Source: AWEX, ICS

Key points

  • Mid-break level has its largest effect on fleece wool that can be up or downgraded.
  • This tends to be fine merino wool 70-90 mm in length and with a staple strength between 30 and 39 N./ktx.
  • Fleece wool with very low staple strength tends to go into the same price category regardless of mid-break levels.
  • Mid-break price effects are also limited in fleece wool with high staple strength in the optimum 70-90 mm staple length range.

Price premiums and discounts in recent months have responded to the rise in proportion of wool observed with high mid-break levels. This article briefly looks at the combined effect of micron, length, strength and mid-break on fine merino fleece wool sold in eastern Australia last week.

The price effect (premium or discount) of mid-break depends on the other wool characteristics it is bundled up with in a lot. You could liken the wool sales as a massive set of circular sheep yards with wool going around, passing through numerous drafting gates with exporters selecting lots or letting them pass through dependent on what they are after.

The effect of mid-break is best seen on the middle strength ranges of 30-39 N/ktx strength wool shown in tables 1 to 3. Each table shows the price effect (approximately calculated by Independent Commodity Services) of merino fleece with combinations of strength and mid-break levels for a given micron and staple length from last week. In table 1, 15 micron fleece wool with a staple length ranging from 70 to 90 mm is used as a base. Variations in price are then looked at for different combinations of staple strength (on the left hand side) and mid-break (running across the top). If you look at the 30-34 N/ktx strength you will see a premium of 0% for the low mid-break running through to a discount of 10% for high mid-break.

Keep in mind we are looking only at one week’s sales and at lot details. Wool needs to be blended for processing reasons. As a consequence, exporters look at the market through consignment averages rather than by lot or wool type results.

It is a similar story for the 17 micron 70-90 mm length wool in table 2 and 17 micron 100-120 mm in table 3. Wool with staple strength in the 30-39 N/ktx range has the opportunity of be upgraded (for lots with low mid-break) and downgraded (for lots with high mid-break).

Now look at the price effect on wool with low staple strength below 25 N/ktx. The effect of mid-break becomes less as the wool has limited scope to be upgraded, and it is already priced around good pieces price levels so there is little downside.

It is a similar story for wool with high staple strength above 40 N/ktx. The effect of mid-break is discernible in some cases but it is not strong.

Table 3 shows the effect of strength and mid-break on long staple wool. The effect is much less as the base price is already lower for the 100-120 mm length wool. There are few, if any, premiums for high staple strength as the wool will not be upgraded in the eyes of exporters buying for Italian interests. Discounts for low strength and or high mid-break are less because the starting price level is already discounted (there is less to lose).

What does this mean?

The brief analysis above is designed to show that the level of mid-break is uneven in its effect on wool prices. The greatest effect is on wool that has the potential to be upgraded into low grade “Italian” types or downgraded into low tensile strength fleece/pieces prices. For wool already “drafted” into the upper or lower categories, mid-break is of minor importance.

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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