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Tuesday, July 11, 2017

Wool ain’t wool

By Andrew Woods  |  Source: AWEX, RBA, ICS

Key points

  • Be careful in assuming colloquial descriptions of wool are uniform between countries.
  • Crossbred wool in New Zealand is what we call carpet wool in Australia, while out crossbred wool is their comeback or mid-micron wool.
  • Prices for very broad wool (34 micron plus) have fallen back to their levels of a decade ago.

2017-07-11 Wool Fig 1

2017-07-11 Wool Fig 2

2017-07-11 Wool Fig 3

Merino wool prices are going gangbusters, so why are New Zealand farmers struggling with wool prices? The answer lies in the old saw that “wool ain’t wool” or more specifically in this case “crossbred wool ain’t merino wool”. This article takes a look at crossbred wool prices.

In June 2014 Mecardo compared the New Zealand clip with the Australian clip. Where the Australian clip is 80% merino, the New Zealand clip is predominantly carpet wool types with the 38-39 micron categories their big production categories. Merino wool only makes up around 7% of the New Zealand clip, although the exact makeup of the clip is shrouded in secrecy (the Kiwis don’t get everything right in terms of markets).

In Australia the big crossbred categories at 27-28 micron, which is classified as comeback (or mid-micron) in the official New Zealand statistics. In New Zealand the very broad 38-39 micron categories are classified as crossbred. So, you can see it is easy to become confused about which category of wool is being discussed between countries. So, when the Kiwis talk about crossbred wool they mean high 30 micron wool, not 27-28 micron comeback wool and certainly not merino wool (which averages around 17-18 micron in New Zealand).

Figure 1 shows two price series, for 28 and 36 micron wool, drawn from Australian auction data. The series run from the mid-1990s through to last week and are shown in Australian dollar terms. The 36 micron series is taken as a rough proxy for the New Zealand crossbred types. The 28 micron price series has weakened by a couple of dollars (which is a big move for Australian crossbred prices) since 2015 but is holding well above the levels traded at prior to 2011. Now look at the 36 micron price. After trading near 500 cents for some years, it has returned to its pre-2011 levels, around 250 cents.

Figure 2 shows the same prices series in New Zealand dollar terms. Their mid-micron or comeback price is holding up but the 36 micron price is testing the lows seen in the decade to 2009.

Finally we show the two series in US dollar terms, which is what the buy side of the industry watches the market in as well as the South Americans. The story in US dollar terms is essentially the same. The 28 micron price continues to hold most of its gains made in 2011, while the 36 micron price has given up all the gains made in 2011 and returned to the levels traded at in the decade leading up to 2011.

What does this mean?

Wools ain’t wools, so while merino wool prices are sky high and Australian crossbred types are performing solidly, the 34 micron and broader categories are struggling. Prices for the broad categories have fallen to pre-2011 levels in Australian, New Zealand and US dollar terms. This is the equivalent of the 21 MPG falling by 40% from current levels, which explains clearly why New Zealand sheep farmers are not happy.

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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