By Andrew Woods | Source: AWC, WI, CSIRO, AWEX, ICS
The exciting end of the merino market is where prices rise very strongly as fibre diameter decreases. This is the inflection point in merino prices where the premium per micron increases dramatically. While it may seem like a distant memory in the current market, this article looks at the market structure that underpins this price inflection point.
Since the late 1980s, the median merino micron (the micron in the middle of the merino clip) has trended downwards from around 22 micron to 19.0 micron this season so far. During this period, the point at which large micron premiums appear has also moved finer, with the picture muddied by general wool price cycles.
Figure 1 shows the average price for combing merino wool by micron for the season to April. The price trends upwards gently until around 14 micron when it starts to rise very quickly. This is the inflection point in the ultrafine merino market for this season.
Figure 2 shows the median merino micron category since the mid-1980s, along with an estimate of the micron at which point price premiums per micron started to increases markedly. It is an estimate as some of the data is old and lacks detail. The difference between the median and the inflection point is shown by the bars in figure 2.
In the late 1980s, the inflection point was around four microns finer than the median. During the last 20 years the inflection point has been between four and five microns finer than the median. For the mathematically minded, this is around three standard deviations finer than the median. The annual standard deviation of fibre diameter in the merino clip in recent decades has ranged between 1.7 and 1.8 microns.
How much wool is lucky enough to be priced at the higher level? The volume varies from year to year but, on average, we are talking about 0.2% of the clip being finer than the inflection point. Logically, this makes sense. Price rises strongly for a very limited supply of wool that is on the tip of the merino fibre diameter distribution.
The headline grabbing prices that are paid for the finest wool in the Australian clip cover about 0.2% of the clip on a clean basis. Like most headlines it is much ado about nothing.
As the Australian clip has fined up in recent decades, the point at which price rises per micron increases substantially has also moved finer. This inflection point is approximately four to five microns finer than the median merino micron category.
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