Vegetable matter (VM) is just one of many factors that influences wool prices.
The amount of VM in wool clips is seasonable, generally reaching lows around Christmas and highs toward the middle of the calendar year.
When the level is low, it doesn't have a great influence on price but by the mid calendar year, this changes when VM becomes an issue for mill consignments trying to meet a one per cent VM average.
Modelling by Mercado analysts predicts that in 2023, the proportion of 5-6 per cent VM wool will jump back to levels consistent with 2017 through 2019, which is fairly high.
The implication is that discounts for vegetable matter will increase as the supply chain struggles to absorb the increased supply of higher VM clips.
As a rule, vegetable matter in Western Australia tends to be lower than in the east, although there have been exceptions for short periods.
The VM level has kicked up this month (to date), which in the east is off a relatively high base whereas, in the west VM, levels are somewhere near normal.
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Interpretation of data by Mercado analysts gives an idea when the VM level should be higher or lower than normal and provides a six-month forecast, which can be extended by using historic eastern clip pasture growth rate (PGR) levels.
The influence of supply in the greasy wool market can be best shown in its correlation with changing price relativities.
This can include rising price ratios to other fibres as the supply of Merino wool falls or the ebb and flow of premiums and discounts in response to seasonal changes in the supply of different sorts of wool.
The supply of long (110 millimetres plus) 21-micron Merino fleece with a VM level between 2pc and 3pc (expressed as a percentage of all merino 21-micron wool sold) was compared by analysts to the discount for this category of wool to the eastern 21 Micron Price Guide (MPG) for the past decade.
Supply has really picked up since 2021, with the discounts widening as a consequence.
In the years leading to 2021, when the supply was negligible, the discount was often quite small, in the range of 1pc to 2pc.
Mercado analysts say slightly shorter fleece (to 105mm long) with a higher VM range of 4.1pc to 7pc shows discount shown is primarily a function of high VM.
VM levels should peak around May but remain at relatively high levels through to August or September.
This means the pressure will be on these discounts to widen, or they may reach a maximum and stay at these levels for the months when vegetable matter supply is high.
In good news, data emerging from US wool apparel imports show the country made a strong surge in the later part of 2022, with imports for September to November 2022 being 20-35pc above their 2019 (pre-pandemic) levels.
This has pushed the 2022 import value around 30pc higher than 2019.
There has been 46.6pc growth in import value over that 12-month period and it pushes the United States towards becoming one of the largest point-of-sale destinations for Australian wool after China and alongside other significant markets such as Japan, the UK, Italy, France and Germany
According to AWI, there is a real sense that 2023 will be a better year than 2022.
AWI chief executive John Roberts says the company's network of offices are reporting positive signs for wool sales across the year.
"Our team in China has told us that a high degree of normalcy has returned after the two-month long omicron outbreak," Mr Roberts said.
"Most of the textile mills are operating in full capacity since early January.
"The country's GDP is set to bounce back and accordingly the level of optimism remains high among Chinese consumers - more than half of surveyed respondents believe their household income will increase over the next five years.
"With around 40pc of Australian greasy wool consumed by domestic consumers in China - that optimism should flow through to more sales"
Meanwhile, if VM supply stays plentiful, supply pressure on discounts is expected to remain until spring.
