There’s a vein of thought that market commentary must be optimistic to encourage the provision chain to purchase. If solely the world had been so easy. Such considering undervalues the capability of decision-makers alongside the provision chain to evaluate conditions and act accordingly. That doesn’t imply the market as a complete won’t sometimes overshoot on the draw back and the upside. As John Maynard Keynes stated of merchants, “markets can stay irrational longer than you possibly can stay solvent.”
Whereas worth rises through the previous couple of weeks have caught normal consideration, costs have been rising since mid-year. Determine 1 reveals the worth change since mid-2025 for 15 by 22 microns in cents/kg clear and share phrases, in addition to the closing worth for this week. Jap AWEX MPGs are used for 16.5 microns and broader, whereas worth collection structured alongside MPG strains are used for 15.0 to 16.0 microns. It has been a very good time, with 26% to 37% rises, or 400 to 600 cents.
Determine 2 reveals the identical evaluation for crossbred MPGs, 25 by 32 microns. Whereas the rise in cents per kg phrases has been smaller, the proportion rise has been appreciably bigger, with the 28 MPG up by 64%.
Such a fast rise in worth may have pushed greasy costs out of line with high and yarn costs. At some stage, the drive to increased costs will run out of steam, after which the market will check how a lot of the worth rise is sustainable. Whereas all this is happening, the highest and yarn markets can get again into alignment with greasy wool costs. We have now a marketplace for this very course of.
Now, to the potential short-term draw back threat. Within the absence of a working crystal ball, we are able to use the latest worth rises to assist gauge the scale of potential worth falls because the market works out the place it is going to settle in the meanwhile. A small retracement after such a big rise could be 25%. This implies the market offers up 1 / 4 of the rise. Determine 3 reveals what this implies for the Merino micron classes underneath this situation. For instance, the 17.5 MPG would fall by 140 cents, which isn’t that encouraging. Nonetheless, it quantities to a 6% fall in worth after a 35% rise in latest months.
A extra possible fall is round one-third, or 33%, which is proven in Determine 4. These two retracement ranges have been chosen assuming the market retains a lot of the rise, with low manufacturing and shares underpinning the brand new, increased costs. A fall within the public sale market of 100 cents will see sky-high passed-in strains, thereby limiting wool circulate to the provision chain.
