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.

Trade summary

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.