By Andrew Woods | Source: AWEX, ICS
Wool is run through a series of metaphorical drafting gates by exporters when assessing in which consignments they can use a lot, and from this process price is determined. This article takes a look at cardings prices and the relationship to faulty combing wool type prices.
Mecardo looked at the relationship between a 19.5 micron carding fleece price and faulty combing wool types a year ago ‘Cardings prices support faulty combing wool prices’. This article brings the data up to date to see if these relationships are still in place.
Figure 1 compares prices for 19.5 micron 50 mm length fleece (carding) and a merino piece with heavy vegetable fault (VM) which is slightly finer and 80 mm in length (combing). The heavy VM type has intermittent prices as it requires average rainfall in pastoral zones and central NSW in order to be produced. Note that the 50 mm length 19.5 micron fleece price has been trading between 1200 and 1300 cents clean for the past year.
In recent months prices for some heavy VM pieces with either accompanying colour issues or clumpy vegetable fault have been very heavily discounted. They are not included in this analysis. Vegetable fault in the eastern states is running well above average, despite the drought conditions of the past year in the southern areas.
Figure 2 compares the same 19.5 micron 50 mm price series with 20 micron 90 mm length fleece wool with a low staple strength (below 20 N/ktx). These two series tend to track each other, occasionally getting out of line as they are at present with the long, tender fleece price slightly above the carding price.
The strength of the cardings market is best shown in Figure 3. This shows the basis (difference which this case is a discount) for the 19.5 micron 50 mm series to the eastern 19.5 MPG, from 1995 onwards. In 1999 the carding prices traded at a discount of up to 45% to the combing type, which means the faulty types compared above had significantly higher discounts at the time. From 1999 through to now the carding discount to the MPG has consistently shrunk, as have the discounts for faulty combing types with it.
Carding discounts remain at minimal levels, thereby keeping the price for faulty combing types also at minimal levels. Short length types are a good way of checking valuations for faulty combing types which often struggle for volume, hence useable quotes by which to develop a valuation. The default structure for forward contracts is to have floating premiums and discounts, which offer no protection against widening discounts. This is only an issue if you produce wool in a region that is subject to large swings in key wool specifications such as staple strength or vegetable fault.
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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