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Tuesday, September 01, 2015

Wool mid-break changes, and the impact on premiums and discount

By Andrew Woods, ICS  |  Source: AWEX, ICS

Key points

  • The supply of high mid-break wool reached a low in March and has lifted since then.
  • Despite a lift in the proportion of high mid-break wool in the clip, the supply chain has been able to absorb this wool with increasing discounts.
  • The one exception to this rule is high strength fine wool, which is missing out on the best prices if the lot has a high mid-break level.

2015-09-01 Wool Mid -break FIG 1

2015-09-01 Wool Mid -break FIG 2

In January, Mecardo looked at the relationship between rainfall and high mid-break levels (point of break in the middle 75% or greater) in the Australian clip. From the rainfall data, we expected the level of high mid-break in the clip to fall. This article takes look at what has happened and how premiums and discounts have reacted.

After peaking around 20% last October, the proportion of high mid-break in the clip fell steadily through to March, where it bottomed at around 8%. Since then, the proportion has lifted to be around 12%, which remains a comfortable level for the supply chain to absorb.

Figure 1 shows the proportion of high mid-break wool sold by month from 2003 to August 2015. The proportion of high mid-break wool tends to reach a low between autumn and mid-year, which it has done again this year.

Figure 2 looks at the market for the past 12 months only. It shows the proportion of high mid-break wool sold each month along with estimates of premium for low mid-break levels (around 10%) and discounts for high mid-break (90%) for 19 micron fleece.

During the period of plentiful supply of high mid-break wool seen last spring, the discounts for wool with high mid-break were around 5-6%. The large discounts persisted through to early 2015, even though the proportion of high mid-break wool was falling.

Figure 1 shows that the supply of high mid-break wool started around 20%, so even though the supply of this wool was falling it remained high.  By March, the supply had dropped to low levels and the market re-adjusted the premiums and discounts to low levels, reflecting the removal of mid-break as an issue to exporters by the fall in supply of high mid-break levels.

The premiums and discounts shown in figure 2 are averages, which by their nature mask a range of effects. One effect currently present that is not shown is a higher effective high mid-break discount for high staple strength fine wool (finer than 19 micron), regardless of length. Basically, the buyers of these types are not willing to pay premiums for the combination of high staple strength and high mid-break.

What does this mean?

Mid-break levels vary in the clip in response to seasonal conditions. In turn, premiums and discounts change in response to change in the supply of high mid-break wool, when the supply reaches a level that is difficult for exporters to absorb into their consignments and still meet the consignment specifications. At present, the supply of high mid-break wool is moderate to low, and exporters can absorb the supply. The exception to this arrangement is high staple strength lots, which are discounted more heavily if they have high mid-break levels.

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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