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Thursday, December 22, 2016

Wool’s winners and losers for 2016

By Robert Herrmann  |  Source: AWEX, ICS, ACA

Key points

  • Overall the wool market has performed well with the EMI plus 8% for the year & plus 28% over the past 2 years
  • Fine wool has out-performed the market in 2016
  • Medium merino types under-pinning the market
  • X Bred’s have retreated below 2014 levels
  • Carding indicator continues a stellar run 

2016-12-22 Wool

2016-12-22 Wool 2

At the moment, Australian agricultural mainstream broad acre commodities (grain excepted) are faring well price wise. Combined with a very good season optimism is high, and cash incomes will be at the top of the range (grain incomes included). The wool market is not a homogenous market, it is made up of a variety of differing components. This article looks at which sectors performed well and which did not, and provides an outlook for the different wool sectors.

The Australian sheep flock peaked in the late 1980’s and since then we have seen a steady decline in sheep numbers with the falling flock impacting mainly on the Merino portion. It could be argued that over this period wool has been a constant loser with the percentage of the clip identified as Merino falling to around 80%. 2016 has seen a continuation in the improving wool prices, could this in fact be a turning point for the fortunes of the wool industry?

To compare, we will look at change from December 2014 as well as market movement over the past 12 months (December 2015), and will assess the market in 5 different categories.

1.    Major indicators.

The A$ Was basically unchanged year on year, however over a two-year period it is down from A$0.83 to A$0.73, a fall of 12% helping to keep the US$ price of the EMI to a 14% lift while the A$ EMI has lifted 28% since 2014. Year on year the US$EMI is up 10% and the A$ EMI is up by 8%, solid and consistent improvement over two years. Fig. 2.

2.    Superfine wool (17.5 MPG & finer)

The poor prices of this sector have been a large contributor to the decline in the flock, but with 18% increases year on year it is now back in vogue. The 17 MPG over the two-year period has improved 40% or 500 cents. Finally we have seen the Fine Wool Premium (Basis) over the rest of the clip find some life, this should continue into 2017 further supporting this end of the wool market. The improvement in fine and superfine wool probably has further to go in 2017 as the supply continues to tighten.

3.    Fine wool (18 to 19.5 MPG)

Again, very strong price improvement year on year; the benchmark 19 MPG has improved 16% each year or just on 400 cents since December 2014. As reported on Mecardo, this section is now the median for the merino clip and will not see the same constriction of supply as Superfine types, however we expect to see some improvement in 2017 but more restrained than the finer types.

4.    Medium wool (20 to 22 MPG)

This sector has steadied up after leading the wool market during the drought inflicted over supply of fine wool (and conversely a falling supply of medium wool). Still, a 21% improvement over two years (+250 cents) and a further 6% over the past 12 months is significant. If this sector can hold these levels it will provide a strong platform for the majority finer section of the clip. The outlook though is more mixed, the recent strong prices relative to finer microns, and an increasing supply will see pressure on the price of these MPG’s going forward.

5.    Crossbred wool

After a stellar rise with the peak in mid-2015, Crossbred types have steadily and relatively quickly declined to be currently 10% below 2014 levels and 20% below December 2015. Fundamental charting suggests that it is now at or close to the bottom, however recent large offerings have put further pressure on the market especially for lower quality or poorly prepared types.

6.    Cardings

These have caught many by surprise as the market for double sided coats took hold and short wool was in demand. Since December 2014 we have seen a 300-cent lift (+37%), and this has been consolidated over the past 12 months with a further 2% improvement. These good prices have meant that there is little supply of carding wool in the pipeline and with this fashion still running expect that Cardings will continue this strong run into 2017.

What does this mean?

This is a very good time to be in the wool growing/selling business, and with the improved prices for sheep sales we should see at least a modest lift in sheep numbers going forward.

The outlook for wool is good; low supply, minimal stocks in the pipeline and a reduction of drought effected fine wool all contributing to a positive outlook. Unfortunately, many of the recent grower exodus has been farmers deciding to drive a “John Deere” so it is unlikely we will see any rush for these growers to return to wool. It should though see wool producers who have “stuck” with wool remain committed, and perhaps the cropping areas consider re-introducing a few sheep to balance some of the risk inherent in cropping.

The good prices for prime lambs will continue to attract sheep farmers, however as we have been saying for some time a good Merino enterprise can produce surplus sheep meat sales as well as participate in what are historically high wool prices.

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Northern MPG
Northern MPG

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Southern MPG
Southern MPG

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Western MPG
Western MPG

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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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