Market Morsel: Another fine week
Despite prognostications last week about fine merino premiums being stretched, they increased again this week. The gap between the average merino micron (around 19 micron) and two microns finer and two microns broader are in rarefied territory. The premium for two microns finer is now on par in cents per kg terms with all the big peaks of the past four decades 1988, 2000-2001 and 2011.
On the other side the discount for two microns broader than the average merino fibre diameter is at historic highs. Demand is reported to be still keen for superfine wool so we may see the price differences stretched further in the short term. As next season progresses the broadening of the clip due to the recovery from drought will fade and with that some of the supply pressure on the fine end of the market will ease. That is a couple of quarters away, so for the time being it is a rip roaring fine merino market.
This week showed us that the 17 MPG is not going to be stuck at 2300 cents, despite broader merino prices easing under increased supply. Sentiment remains bubbly for fine merino wool so at the moment it is a case of stand back and see where prices go to. It is a good time to shift any fine wool out of stock onto the market.
As 19 micron is the main micron category by volume for the merino clip, it is less affected by changes in the micron distribution. This means the supply is less volatile. The price action this week reflected this with fine wool (supply down) price up and broad merino (supply up) prices down while the 19 MPG was relatively unchanged.
Broad merino prices eased this week, with buying more selective amongst the fleece with higher vegetable fault and/or lower yields. Supply is well up on year earlier levels for these categories, with the increase in supply racing the increase in capital (compared to last year) that the supply chain is allocating to broad merino purchases. despite the increase in supply there are good forward bids at premiums to the market through 2022.
The 28 MPG price ratio to the 21 MPG held around 0.36 and even managed to increase slightly this week. There are huge price differences across the whole raw wool (merino and crossbred) micron price curve which the supply chain will ultimately take notice of and start to plan to take advantage of. The unknown is when.