AN interesting and challenging week for the market at auction and in the forwards. The anticipated correction in the auction from five-year highs produced a larger than expected fall on the first trading day in all three centres.

A base and a bounce occurred on the following day. These stimulated action from both buyers and sellers, but on limited volume. Equal volumes of outrights and options traded as both sides looked to come to terms with the volatility of the market over the last month — 19 micron moved from 1570 cents to 1517 cents, rallied to 1643 cents, only to fall to 1593 cents and settle yesterday at 1609 cents. 21 micron showed a similar pattern falling from 1414 cents to 1350 cents to rally to 1442 cents and fall back to 1391 cents, settling yesterday at 1400 cents.

Growers reacted by requesting strikes above the recent lows of 1517 cents (19 micron), but attractive enough for exporters to deliver fair value premiums.

We expect similar trading action into next week. Buyers will be pricing in the volatility and risk as we move into the Christmas recess. We would expect bidding pre-Easter to be in the 1560-1580 cents range for 19 micron and 1370-1380 cents for 21.0 micron. Post-Easter is likely to be 20 cents under these levels. These levels are still in the 85-90 percentile bands for the last six years. We expect to see continued interest from the grower side on options as they look for insurance against a deeper retraction, but wish to take advantage of any upward moment.

Trade summary

Jan 21 micron 1375 2t

Feb 19 micron 1570 7.5t

Feb 21 micron 1370 5t

April 18.5 micron PUT Option 1600 strike 37 cents 5t

April 19 micron Put Option 1550 strike 33 cents 2t

April 19 micron PUT Option 1540 strike 33 cents 3t

Total 24.5t

Source: Southern Aurora Wool.