By Andrew Woods | Source: AWEX, AWTA, WTiN, Cotlook, PCI Wood Mackenzie, ICS
To twist a famous saying, high prices have many fathers while low prices are dropped at the orphanage. Current merino prices, combing and carding, are high by any measure so it is worth looking for key drivers to these price levels. This article takes a look at some of the identifiable and testable drivers of merino prices.
One paternity claim for merino prices is coming from AWI, which is to be expected from a marketer. Figure 1 shows the difference in average prices for a range of wool categories (wool ain’t wool) and apparel fibres for the period 2006-2010 and the 2010-2017, in Australian dollar terms. The Eastern Market Indicators (EMI) average since 2010 has been 37% higher than the in the preceding period of 2006-2010, which is a handy rise in price.
The best performing wool category has been the Merino Cardings indicator, up by 64%, with the 28 MPG coming a close second (up by 63%). Next comes the 23 and 21 MPG, up by 40-45%, then cotton (up by 32%), the 19 MPG (31%), cashmere (24%), 18 MPG (24%) and the 16 MPG (16%). Manmade fibres, represented by polyester staple and acrylic, bring up the rear with their average price down by 3%.
The finer merino MPGs match or underperform the performance of cashmere, so this section of the wool market looks to be travelling in line with comparable apparel fibre prices.
The broader merino MPGs have outperformed cotton. However the supply of broad merino wool has slipped in the past decade. Figure 2 compares the Australian volume of 21-23 micron merino wool (in millions of farm bales) with the 22 MPG price ratio to cotton since the mid-1990s. As volume has fallen (from around 2 million farm bales in the mid-1990s) to around 400,000 farm bales the price ratio to cotton has risen. Falling supply has helped to lift the relative price of broad merino wool to cotton (and the man made fibres). This helps explain the outperformance of broad merino to cotton prices during the past seven years.
Merino cardings, the best performing apparel fibre in recent years, has been improving in relation to combing wools since the early 2000s (see Cheap Staple Strength follows cheap staple length). This still does not explain why merino cardings prices (and related wool characteristics) have improved in price so much.
Crossbred prices, the second best performer during the past seven years, are currently under downwards pressure with extreme discounts to merino prices. High merino prices are helping hold finer crossbred prices from falling further.
While 2017 prices are above comparable apparel fibre price levels, combing merino prices during the past seven years have been matched comparable apparel fibres (cotton for medium/broad merino and cashmere for fine merino). Lower volumes have helped the broad merino categories to outperform cotton slightly. Merino cardings are different, and have outperformed all other fibres. Crossbred prices have had a great run, but are now under extreme downward pressure.
The key drivers behind wool prices in recent years are a combination of general apparel fibre price movements and changes in wool category volumes.
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.
Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published. You will also receive one month Premium access for free.
You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.Learn more about Mecardo Sign Up Now!