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Tuesday, May 20, 2014

Where do ultra-fine merino prices rise strongly?

By Andrew Woods  |  Source: AWC, WI, CSIRO, AWEX, ICS

Key points

  • The inflection point in ultrafine merino prices is the point at which price rises per micron increase dramatically.
  • As the merino clip has become finer during the past 25 years, the inflection point has also moved finer.
  • The inflection point tends to be four to five microns finer than the median merino micron category.
  • The proportion of the merino clip finer than the inflection point is around 0.2%.

2014-05-19 Merino Micron Inflection Point FIG 1

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.

What does this mean?

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.

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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