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Tuesday, March 17, 2015

VM effect on unskirted fleece discounts

By Andrew Woods  |  Source: AWEX, ICS

Key points

  • High vegetable fault merino lots have attracted heavy discounts for unskirted fleece preparation in recent weeks.
  • The heavy discounts are a reminder that these discounts wax and wane, sometimes being punitive and sometime minor.

2015-03-17 VM Unskirted Fleeces FIG 1

2015-03-17 VM Unskirted Fleeces FIG 2

Following the article three weeks ago on discounts for unskirted fleece, a reader asked the excellent (and obvious in hindsight) question of how vegetable fault (VM) affected discounts for unskirted fleece wool. This article looks at how VM has interacted with unskirted fleece discounts during the past two weeks.

In an article on unskirted fleece discounts in September 2013, it was highlighted that these discounts do jump around. In the words of one seasoned observer, they are “a bit hit and miss”, which is always an issue when you are trying to sell wool. This point is being made because the data presented in this article is only for the past couple of weeks and, as such, is simply a snapshot of the market rather than a considered full season view.

For the purposes of analysis, merino wool with a both a D certificate and assessed as having fribs (U1 or U2 in the AWEX ID) were taken as being unskirted wool. Technically, this is not entirely correct as there is no formal way of identifying unskirted wool (which is a problem for the market). However, in practical terms, this is a reasonable assumption. The lots were then split into low VM (2% and less) and high VM (greater than 2%).

Figure 1 shows the calculated discounts for low VM merino wool by micron for the past two weeks. The 17 micron category was heavily discounted (by nearly 12%) with the balance discounted by 1% to 5%. The heavier frib wool (U2) had a higher median discount of 5% compared to the lesser frib wool (U1) of 2.9%.

Figure 2 shows similar analysis for wool with VM above 2%. While the lesser fibre wool was discounted by only 2%, the high VM wool with more frib has been consistently discounted by 10-12% in recent weeks, with the price effectively a pieces price.

Time will tell whether these heavy discounts for higher VM unskirted wool are structural (permanent) or simply part of the normal volatility we see in these discounts. In the meantime, these discounts suggest that farmers need to consider what sort of wool they will be delivering to the market, especially high VM clips at present, and the potential risk that unskirted preparation will pose to their returns.

Read our previous article – Unskirted merino fleece discounts – fair value? (published 26 Feb ’15)

What does this mean?

Unskirted fleece wool is classed as non-conforming and given a D certificate at auction, which means it is grouped with a range of lots that may or may not provide processors with unwelcome surprises. As this preparation is outside of the AWEX Code of Practice, wool classers, who should play an important role in maintaining quality control in the wool sheds, are often not used. The consequence is that this wool is sometimes used in blends and at other times ignored, hence the variation in discounts. At present, high VM unskirted fleece is being ignored and priced as pieces. This should be taken into account when planning your shearing.

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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