The Merino micron distribution continues to move to the left (finer micron categories).
Changes in supply from the eastern non- pastoral region are playing a bigger role in the swing in micron.
The drop in supply of broad Merino volumes continues to contribute to their outperformance of the finer micron prices compared to year-earlier levels.
Working out what the actual drivers are of wool prices at any given time in the market is not that easy. This is because the various elements of the demand side of the market are not quantifiable and elements of the supply side, such as stocks through the supply chain, are commercially sensitive hence hard to know. One area we can quantify is greasy supply and we do this in this article.
Auction sales volumes continue to follow the lead of AWTA core test volumes, as high prices have been sucking up available wool for sale. Figure 1 shows the year on year change in Merino combing wool volumes (by micron) for August and September, broken up into three regions (Western Australia, the eastern pastoral regions and eastern non-pastoral regions).
The eastern non-pastoral regions are starting to contribute a lot more 16 micron and finer wool to sale, and also to the drop in broader Merino volumes. The eastern pastoral regions are still accounting for a big part of the drop in 21-24 micron Merino volumes. The Western Australian clip is still appreciably finer than a year ago with less broad and more fine Merino wool.
Overall the broad Merino supply continues to be a punishing 40-50% below year-ago levels. This is a huge drop in supply, compounded by economic issues in Argentina and falling production in Uruguay. The South American countries are small producers of wool compared to Australia but have accounted for 8-10% of broad Merino supplies in recent years.
On the finer side of things, 15 micron volumes are up a whopping 127%. While this rise is not unexpected, it still inspires some incredulity. 16 micron volumes are up 56%. The downward pressure on fine wool premiums will be strong from such production increases, especially for the lesser types.
Figure 2 compares the year on year change in the US dollar price for MPGs (17 to 25 micron) and for average combing fleece prices (15 to 16 micron) for August/September with the change in Merino combing volumes. Price for all categories is up on year-earlier levels. However, price has risen higher for those lots where supply has fallen, and conversely it has had smaller rises for the categories where supply has increased. Supply is clearly playing a role in current prices.
The continued fining of the Merino production due to dry seasonal conditions is helping to push broad Merino prices above year-earlier levels. This is outperforming the finer micron categories compared to year-earlier levels and will put downward pressure on fine micron premiums. The 19.5 MPG is some 27% above year-ago levels (August-September averages) so the base increase in Merino combing prices has been substantial. However, supply has helped with the overall Merino combing wool supply down by 6% and falling.