By Andrew Woods | Source: AWEX, PCI Fibres, WTiN, ICS
In November, Australian Wool Innovation (AWI) published a market intelligence note looking at wool prices in four-year intervals from 1990. AWI concluded from the data that its marketing was having an appreciable effect on wool prices. This article tests the conclusion drawn from the wool price data by AWI.
AWI picked October 2010 as the start date to measure the recent effects of wool marketing, and developed average prices for the Eastern Market Indicator (EMI) for each four-year interval from 1990. From 1990 to 2010, the EMI rose by 214¢/kg clean. Since 2010, it has lifted a further 239¢.
After leaving the effect of the 2011 apparel price boom out of the equation, AWI concluded that the lift in the average EMI for the 2010-2014 period was appreciably larger than in any of the preceding four- year periods (which it was), and that this lift was evidence of marketing having a positive influence on wool prices. This conclusion may be correct. However, any analysis of commodity prices through time needs to account for changes in supply and competing/alternative fibre prices. Wool prices do not materialise in a vacuum.
Firstly “wools ain’t wools”, as fine wool growers will certainly point out at present. Figure 1 looks at the change in price between the periods 2010-14 and the preceding four years (2006-2010) by wool micron price guides (MPGs). The EMI increased by a respectable 29%. The finer MPGs increased by lesser proportions, while the broader merino categories, the 28MPG and Merino Cardings indicator all increased by around 35%.
Figure 2 provides the same information (all in Australian dollar terms) for cashmere, cotton, polyester staple and acrylic apparel fibres. Polyester staple prices rose by a small 4% and acrylic prices were unchanged. Wool certainly out performed these fibres. Cashmere increased by 24%, out stripping the finer wool MPGs, while cotton picked up by 35%, matching the better of the wool categories.
Trying to determine the effect of marketing on wool prices is a tricky exercise at best. One of the criteria for making such a claim would be the out performance of wool compared to alternative apparel fibres. While figure 2 suggests wool has outperformed polyester staple and acrylics, the performance of wool prices in the format selected by AWI matches that of cashmere (for fine wool) and cotton for medium and broader merino wool as well as cardings.
Slicing and dicing wool prices to account for different factors influencing price is a tricky business. Wool prices are not developed in a vacuum (ask exporters and early stage processors). As such, when looking at understanding a commodity market such as wool, some of the bigger factors operating in the background need to be taken into account. For wool prices this means, at least, changes in supply and the prices of alternative/competing fibres. On the analysis shown here, wool prices simply look to be tracking the same path of the main apparel fibres they interact with.
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