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Wednesday, June 22, 2016

Whole clip basis

By Andrew Woods  |  Source: AWEX, ICS

Key points

  • AWEX MPGs are constructed from full length fleece price auction quotes.
  • Clips that have specifications close to the MPGs (full length, low vegetable fault, middling staple strength) will have average values that track the MPGs closely.
  • Clips that have specifications that vary from those of the MPGs (such as short staple, high vegetable fault or genuine spinners style) will have a more variable basis to the MPGs.

2016-06-22 Wool Fig 1

2016-06-22 Wool Fig 3

The wool market in Australia is a well reported, transparent market despite some of the complaints. Merchants and traders would probably prefer less transparency as this would allow margins to be widened. Other wool producing countries that do not have a good local reporting look to Australian price data as a guide to their local markets. This article looks at one of the key items reported, the Micron Price Guide, and its relation to average clip values.

The Australian Wool Exchange (AWEX) is responsible for producing wool market reports in Australia. The backbone of the reports is made up of the Micron Price Guides (MPG). These are a series of fleece price averages for a range of micron categories from 16.5 through to 32 micron.  The merino MPGs (16.5 to 24 micron) are made up of six to eight quotes of full length fleece with arrange of staple length and strength. The crossbred MPGs are constructed in a similar way, using four quotes per MPG.

During the past year the typical the average merino fleece was 19.5 micron, 90 mm long with a vegetable fault (VM) of 1%, a staple strength of 36 N/ktx and a yield of 70%. Merino pieces were around a full micron finer, with a VM level of 4%, about 70 mm in length and had a staple strength of 27 N/ktx. Merino bellies average around 19.0 micron, 6% VM and 70 mm staple length. Finally merino locks average 18.5 micron with 2.5% VM.

Generally 75% of merino wool sales are combing length fleece, which leaves 25% of merino production as cardings, pieces, bellies with some odds and sods making up the balance. Whole clips contain these non-fleece types which change (lower) the average price. To construct an “average” clip it was assumed the fleece made up 75% of the volume, pieces 15%, bellies 7% and locks 3%.

Figure 1 shows the 19.5 MPG for the past decade (monthly averages) and the constructed average Australian merino clip of combing length for the same period. The average combing clip value tracks the 19.5 MPG quite well.

Table 1 shows the five year decile analysis for the basis (difference) between the whole clip average price and the MPG, as well as the decile analysis between a short (50-60 mm) clip average and the 19.5 MPG. The full length combing clip basis spends most of its time ranging between 96% and 98% of the 19.5 MPG. The basis is quite stable which means an estimate of the gross clip value can be confidently made using the MPG less a basis of 3-4%. For the short staple clip (Prem) clip the basis varies more widely from around 89% to 97%, which means the Prem clip the MPG is a less accurate guide to wool values.

Table 2 (below) shows the actual five year decile price analysis for the 19.5 micron combing clip average, the short Prem clip average and the 19.5 MPG.

What does this mean?

The AWEX MPGs provide an efficient way of valuing wool which is full length, low vegetable fault and middling staple strength without any substantial subjective fault. All you need to know is the relevant basis for the clip to the MPG (typically around 5% discount in this market with strong cardings, pieces and bellies prices) to calculate an estimated value for the whole clip. The going gets harder for wool that varies more widely in specifications from the standard combing fleece types, in which case customised values and deciles are more appropriate to use.

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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