By Andrew Woods | Source: AWEX, ICS
Following on from the earlier article about fine merino combing wool discounts for vegetable fault (VM), this article takes a look at current discounts for VM in broad merino wool (21 through 24 micron).
In early May Mecardo (VM Update) looked at vegetable fault (VM) levels in the clip and showed how they were at high levels, concentrated in the eastern Australian clip and in the broader section of the merino clip. This reflects the predominant supply of higher VM wool which comes from pastoral regions also tends to be broader. Discounts for high VM have been substantial for broad merino for most of the 2017 calendar year as a consequence.
Figure 1 shows three price series for 21 micron combing fleece wool from 1995 onwards. The three series are split between VM levels. It shows the three series follow each other fairly closely, with the gap between the series varying with time. The current (May average) price level is on par with the 2011 peak, aided by favourable exchange rate movements during the past six years.
Figure 2 uses data from Figure 1, from 2003 onwards. It shows the discount in clean cents per kg terms for 2.6-4% and 4.1-7% VM levels compared to a base VM level of 0-2.5%. The discounts vary with the discount for 4.1-7% ranging from around 120 cents to 20 cents. The current (May 2017) levels are wide by the standard of the past 13 years (on par with 2011), especially for the higher 4.1-7% VM level.
Table 1 shows the May 2017 price levels for a range of fibre diameters (21 to 24.1 micron) and VM levels (0-2.5%, 2.6-4% and 4.1-7%). The 10 year percentile rank is also given for the prices shown. As Figure 1 showed for the 21 micron category, the price series for the different VM levels tend to track each other. The price rankings show this to be true as they are similar for the different VM levels within each micron category. The broader and higher VM price series tend to have a lower price rank, reflecting the big increase in supply of these types in 2017.
Table 2 shows the May 2017 average discount of 2.6-4% and 4.1-7% VM levels by micron category, and their 10 year percentile rank. The percentile ranks show the discounts to be near their most negative levels, which means at or near their widest levels. Only the 24.1 micron 2.6-4 % VM discount varies from this, but it is on the edge of the edge of the merino micron distribution and volume is low which decreases the quality of percentile data.
The old saying “that a rising tide lifts all boats” also applies to high VM broad merino wool. Discounts for high VM 21 micron wool are on par with the widest level in cents per kg terms during the past 14 years. In percentage terms they are substantially smaller than their peak levels in the decade to 2010. As the broad merino market has moved to higher levels during the past six years, the proportional effect of discounts for high VM has shrunk.