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Wednesday, March 14, 2018

Unskirted merino discounts – an update.

By Andrew Woods  |  Source: AWEX, Holmes Sackett AgInsights, Gordon Litchfield, ICS

Key points

  • The discount for unskirted merino wool looks to have increased very slightly during the past couple of years.
  • The discount remains quite variable.
  • In this article, an 18 micron fleece looks to suffer a discount of around 113 cents per clean kg at present if it is unskirted.
  • The cost savings in wool sheds vary greatly according to the layout of the wool shed.

2018-03-14 Wool Fig 1

2018-03-14 Wool Fig 2

2018-03-14 Wool Fig 3

A Mecardo reader has asked us to review the effect on price of unskirted preparation. So, In this article we look at the price effect of unskirted wool in the Australian clip, and write of beauty in the wool shed.

For this analysis, fleece wool with a D certificate (which means it is non-conforming to the AWEX Code of Practice) and typed as having fribs is defined as being unskirted fleece. In October 2015 Mecardo looked at the price effect of unskirted preparation (Are the unskirted price discounts worth it?) and concluded merino fleece prices were discounted by around 2%, with quite a variation in discounts between micron categories and sale lots, rising to around 4% for higher VM merino fleece. Crossbred fleece showed a negligible discount.

Since 2015, the market has reversed to an extent, with crossbred prices coming off boom prices to be heavily discounted to merino and merino prices rising to boom levels. Figure 1 shows an estimate of the median price effect (discount) for the past year from 17 through 22 micron merino fleece. The discount remains relatively small, which makes looking for it amongst the myriad of price effects working on the sale price of a lot of wool tricky. The discount varies, but allowing for error in the method of calculation it is somewhere in the 2-3% range.

Assuming 80% of the clip is fleece and 10% is pieces, then the combined fleece and pieces would be valued below the fleece value in the order of 1% for a straight tablelands clip. This assumption will vary with the type of clip. The 2-3% discount shown in Figure 1 needs to be adjusted for the assumed 1% effect of the combined value of the fleece and pieces. It means the 2-3% discounts becomes a discount of 1-2% to the combined value of the fleece and pieces.

For an 18 micron clip at present assume the combined fleece and pieces are valued at 2350 cents clean. A discount of 1.5% is equal to 36 cents. Further we assume the sheep cut 3.15 clean kg (fleece and pieces composing 90% of an average 3.5 kg clean fleece weight per adult) per head so the cost of the discount works out at 113 cents per head. That is the median costly of the past year. It may be greater or smaller, depending on market conditions and the quality of the clip itself. If the clip has a heavy vegetable fault then the risk of presenting fleece with fault issues showing in the sample are high, with a consequent downgrading in price likely.

The reader asked whether it was worthwhile preparing the clip traditionally which we take to mean to the AWEX Code of Practice. In a traditional wool shed (take a classic Riverina wool room with a design stemming from the 1870s) where there is a wool storm normally in progress at shearing, a well-managed (by a competent classer) unskirted preparation can tune the wool room into a thing of beauty. On the Monaro, Gordon Litchfield looked at a range of wool shed configurations and concluded that cost savings from an unskirted preparation varied widely with the wool shed design.

What does this mean?

Only around 1.7% of the merino clip is sold as unskirted on a clean basis, so it remains a very small component of the market. There is a clear cost of presenting merino wool (especially fine micron wool) for sale, in the order of a dollar per head at present for 18 micron wool. Costs saving from reduced labour in the shed need to cover this while ensuring the quality of preparation. The basics of preparation such as mixed lengths, stain, different vegetable faults and so on still need to be attended to. Finally, for a tablelands clip presenting unskirted wool will knock out a lot of the Italian interest in your clip.

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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