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Tuesday, June 02, 2015

So what’s happening to wool production?

By Andrew Woods, ICS  |  Source: AWTA, AWEX

Key points

  • Core merino volumes (19 and 20 micron) rose by around 8% in May, continuing the rises seen in March and April.
  • Fine wool volumes fell in May, which will support fine wool premiums.
  • The overall wool supply for the season, currently up by 1.3% in farm bales, will be close to unchanged.


2015-06-02 AWTA FIG 1

2015-06-02 AWTA FIG 2

In the medium term changes in wool supply (by category) push the pricing structure of the market around. Too much of a category (be it fine wool or wool with high mid-breaks, for example) causes problems for exporters putting together consignments, which are based on the average expected wool production. This article takes a quick look at the latest AWTA supply data.

Figure 1 shows the year-on-year change by micron category (15 through to 25 micron) for wool volumes tested by the AWTA in May. The core merino categories (19 and 20 micron) rose by 9% and 7.4% respectively, which is a solid rise in supply. Volumes of 16 through 18 micron were down, after surging higher through the autumn. On the broader side, 21 to 23 micron volumes were up while the 24-25 micron category volumes fell in May.

Figure 2 shows the year-on-year change for merino volumes sold in May, by micron category. It is a different picture to the AWTA data in figure 1. The orange line in figure 2 shows the quarterly change in AWTA volumes by micron category (all breeds).  The core merino 19 and 20 micron category volumes were higher in the AWTA data, supporting the higher May auction data. However, the fine micron categories changed little in the quarterly AWTA data but jumped in May auction data. This suggests that grower stocks were helping to supplement auction sales.

There is a timing issue that underpins this difference, with wool tested by the AWTA having to be entered into the auction sales process, which generally takes a couple of weeks. In addition, wool sales are added to (certainly in this type of market) by grower stocks or, in falling markets, reduced as farmers hold wool back from sale. A combination of timing issues caused by sale logistics and swings in and out of farmer stocks prevents the reconciliation of AWTA and auction volumes.

What figure 2 does show is that farmers have been able to take advantage of the higher prices in May through selling more wool than they did in May 2014. Some of this will be from growers selling from wool previously held back from sales, while a lot of the increase will have come from extra supply that showed up in AWTA volumes from March and April.

The variation in supply changes by micron category in figure 1 also reminds us to think of wool production by category rather than as a whole. 

What does this mean?

Wool production continues to hold up well, especially given the high rate of adult sheep sold to abattoirs during 2014. Core merino production has increased for the third month in a row, with the finer micron categories falling in volume and broader micron categories increasing. The longer this trend continues, the greater the pressure will be to open up the price differences between micron categories next season. Broker feedback has indicated that grower stocks have reduced as farmers sell into the higher price market. Next season this will help the fine wool market by reducing supply (production plus stocks).

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