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Wednesday, November 18, 2015

Let's look at short and long staple discounts again

By Andrew Woods, ICS  |  Source: AWEX, ICS

Key points

  • Discounts for 120 mm length wool have been nearly double that of 60 mm length wool for 17-19 micron wool during the past year.
  • 120 mm and 60 mm length fleece wool prices have had similar discounts to 85-90 mm length for 17 through 19 micron during the past 5 years.
  • Discounts for short staple wool continue to be higher for broader merino wool.

2015-11-17 Staple Length Update TBL 1

2015-11-17 Staple Length Update TBL 2

In December 2013, Mecardo looked at the premiums and discounts for merino fleece wool that is longer and shorter than the standard fleece length sold in Australia. This article refreshes the analysis to see what, if any, change has occurred in the relative pricing of long and short fleece.

Early shearing is encouraged by some exporters and processors as a way of increasing the supply of 80mm greasy length wool that this section of the supply chain prefers. Apart from the management issues involved in an increased frequency of shearing, there is the issue of increased shearing costs.

Commercial logic would dictate that, when the discounts for overlength wool outweigh the increased shearing costs, then a lot more wool will be shorn more frequently. The following tables look at the price effect of staple length associated with overlength and shorter length wool.

Table 1 compares prices during the past year and past five years of 120 mm long fleece wool (with a lower staple strength) and short 60 mm wool (with a higher staple strength) to the price for 90 mm length fleece wool with a staple strength of 37 N/ktx.

As shown in late 2013, the discount for 120 and 60 mm length wool is similar (in other words the price for the two wool types are similar). That said, the finer overlength fleece has been more heavily discounted during the past year. Discounts for shorter length wool in the broader side of the merino micron distribution are slightly higher than the overlength discounts, as they were in 2013.

Table 2 develops from table 1 and directly compares the prices for 120 mm, 60 and 70 mm staple length fleece wool. The discounts and premiums shown all refer to a base price for 120 mm length fleece wool.

In recent years, 70mm length wool has been priced at close to full (80-90mm) rates. This shows in table 2 in the form of substantial premiums to the 120 mm length wool. Table 2 also shows that the price for 120mm length wool tends to line up with wool in the 60-70 mm staple length range, depending on staple strength.

While some of the premiums and discounts have altered slightly since 2013, the discount for 120 mm length wool remains well below the cost of increased shearing frequency for the broader micron merino wool. While a 12% discount for 17-19 micron 120 mm length wool during the past year is substantial, the discount for the shorter length wool reduces the effective discount by half (assuming the fleece was shorn at six months rather than 12 months).

What does this mean?

Anyone considering an increased frequency of shearing in order to deliver shorter staple length wool to auction needs to consider discounts for both overlength wool and short  wool, assuming you will switch from delivering overlength wool to short wool. At best, the resulting wool prices will offset some of the increased cost: at worst, you may have reduced income. If you can switch from delivering overlength wool to “standard” length wool in the 80-90 mm range, then prices during the past year for fine wool will have covered a large part of the cost increase. Keep in mind, though, that this has been a time of a boom in cardings and a tough market for combing wool. As such, price relativities may easily change back to those of the past five years, which are less attractive.

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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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