By Andrew Woods | Source: AWEX, ICS
The review of price prospects for the 21 MPG in March has proved to be a reasonable assessment, with prices slightly higher than anticipated. This article looks at prospects for the 19 MPG (which is the middle merino micron category) for this season, based on a model of the median merino micron price.
One of the difficulties when considering future prices is to incorporate probabilities. Farmers and exporters tend to like a definitive price target from an analyst, even though such a projection is highly speculative.
Figure 1 shows a range of price projections for the 19 MPG, with the median level shown by the dark line in the middle of the shaded area. The dark and light green shaded areas denote price levels that have a higher level of probability of occurring and the grey shaded regions show lower probability price levels.
The base projection shows that the 19 MPG has a good chance of rising through to early 2015, before weakening. Recent seasonal price patterns fit with this pattern and are in fact part of the model used to make these projections. This middle price projection points to a rise in price of around 100 cents.
The spread of price projections about the median (middle) level favour the upside slightly. Keep in mind that this model is designed to use what information we have at hand now, combined with past relationships between this information, to give an idea of the trend we can expect during the current season. Short term rises and falls will pull prices away from these trend projections, assuming the projections are reasonably accurate.
Lower supply continues to be supportive of the merino market in general, with high cotton stocks and low polyester staple prices likely to cap apparel fibre prices generally (including wool).
Price expectations for wool have improved slightly from the autumn. While cotton stocks remain at high levels and polyester staple prices low, thereby capping apparel fibre prices, wool supplies remain low. In summary, wool prices look to have a good chance of following recent seasonal price patterns of firming in the first half of the season and weakening in the second half.
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