FORWARD wool trading was solid earlier this week, developing into a stand-off between participants as the market looked to find a base.
The stand-off followed another volatile week at auctions, with the anticipated pull-back in the spot market realised over the first two days followed by a consolidation in prices on the close.
Grower participation was light in the prompt months as the dislocation between the current spot auction and the export forward price continues. Growers seem comfortable with short and medium term risk (March to June), while exporters are unable to justify bidding higher when forward sales cannot be executed at current spot levels.
Trades were executed in April and May at 2280 cents for 21 microns, setting new highs. Bidding remains at 2250 cents out to June, presenting solid hedge levels. Processors are left having to buy hand-to-mouth to run machinery, while not being able to pass the cost of production down the pipeline.
The balance of supply and demand is critical, with export numbers continuing to fall, but production numbers are falling at similar rates. This has caused the spreads between microns to tighten as processors look to fill machinery at the lowest cost.
The risk profile remains high. The most pleasing result for the week came via solid trading levels continuing out in 2020. November and December 2020 for 19 micron traded at 2150 cents. This equates to the 85 percentile for the last four years of data.
19 micron Nov 2020 2150 cents 20 tonnes
19 micron Dec 2020 2125/2150 cents 4 tonnes
21 micron April 2280 cents 2 tonnes
21 micron May 2280 cents 25 tonnes
28 micron May 1010 cents 2 tonnes
30 micron June 910 cents 2.5 tonnes
Total 55.5 tonnes
Projected forward trading levels for next week
Month 19 micron c/kg 21 micron c/kg
March 2340 cents 2290 cents
Apr/May 2300 cents 2270 cents
June/July 2280 cents 2250 cents
Aug/Sept 2180 cents 2100 cents
Oct/Dec 2160 cents 2080 cents
Jan/Feb 2150 cents 2040 cents
Source: Southern Aurora Markets.
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