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Thursday, February 26, 2015

Unskirted merino fleece discounts - fair value?

By Andrew Woods  |  Source: AWEX, ICS

Key points

  • Unskirted merino fleece prices have been, on average, around fair value this season.
  • However, the discounts for wool prepared in this manner does vary, with the variation increasing as fibre diameter becomes finer.
  • At this stage the industry does not formally identify unskirted fleece at auction. This wool is simply lumped in with other lots that do not conform to the AWEX Code of Practice.

2015-02-26 Unskirted Fleece Discounts TBL 1

2015-02-26 Unskirted Fleece Discounts FIG 1

The issue of unskirted fleece is a divisive one within the industry. Its detractors see the presentation of unskirted fleece for sale as a potentially irrevocable downgrading of clip preparation standards in Australia. On the other hand, its supporters see it as a logical way to reduce the labour intensive nature of shearing. This article looks at the performance of unskirted merino fleece this season in eastern Australian selling centres.

Firstly we need to understand what the combination of fleece and pieces looks like on paper. Table 1 shows the calculations for the combination of fleece and pieces where the fleece to pieces ratio is 5:1 and the fleece is expected to sell for slightly less than the comparable AWEX Micron Price Guide (MPG).

It is assumed that the fleece, when conventionally prepared, will sell for 99% of the MPG while the conventionally prepared pieces will sell for 87% of the MPG. The average of the fleece and pieces would achieve a price that was 97% of the MPG. This is a 3% discount to the MPG or a 2% discount to the fleece price alone.

Figure 1 shows the calculated discounts this season for unskirted merino fleece sold in eastern Australia, from 17 to 22 micron. Wool used in the analysis had a “D” certificate, which means it did not conform to the AWEX Code of Practice, and either a U1 or U2 qualified, meaning fibs were in the sample. This combination of specifications is taken as representing unskirted wool, although it may include simply poorly prepared wool.

Figure 1 also shows the average price effect (discount) and the standard deviation variation above and below the median, which shows the range containing 67% of the price effect for each micron category.

The average discount was in the order of 2-3%, which lines up with the calculations shown in Table 1. The market, on average, is paying a fair price for the wool. One of the problems with unskirted wool, however, is the variation in discounts, which tends to increase as fibre diameter becomes finer. This is shown in figure 1 by the widening gap between the upper and lower lines as micron becomes less. If the unskirted fleece is sold for a discount of 5% or more then it is selling at a substantial discount to the fair value of the two component categories (fleece and pieces). From the author’s experience, private offers for unskirted wool tend to be pitched around the 5% discount.

The concern of exporters and industry bodies such as AWEX that unskirted fleece preparation will lead to a decline in standards is a legitimate one that needs to be addressed, rather than simply trying to supress this type of preparation.

What does this mean?

Unskirted fleece is fairly well accepted for crossbred clips, although brokers do have a problem ensuring farmers put enough resources into maintaining preparation standards in wool sheds. The fear is that the pressure will transfer to the merino clip if unskirted preparation is encouraged.

At present, the market is paying fair value for unskirted fleece wool at auction (although this will not apply to wool being sought by specialist Italian mills who will simply walk past the sample box) although discounts do vary.

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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